<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-22154
MANUGISTICS GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1469385
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2115 EAST JEFFERSON STREET, ROCKVILLE, MARYLAND 20852
(Address of principal executive offices) (Zip code)
(301) 984-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 23.9 million shares of common
stock, $.002 par value per share, as of October 6, 1997.
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<PAGE> 2
MANUGISTICS GROUP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
August 31, 1997 (unaudited) and February 28, 1997 3
Condensed Consolidated Statements of Income -
Three and six months ended August 31, 1997 and 1996 (unaudited) 4
Condensed Consolidated Statements of Cash Flows -
Six months ended August 31, 1997 and 1996 (unaudited) 5
Notes to Condensed Consolidated Financial Statements - August 31, 1997 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
August 31, February 28,
1997 1997
---------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,645 $ 8,543
Marketable securities 63,658 13,631
Accounts receivable (net of allowance for returns and uncollectible 41,360 37,093
accounts - August 31, 1997, $1,644; February 28, 1997, $1,215)
Other current assets 4,486 2,275
---------------- ----------------
Total current assets 120,149 61,542
PROPERTY AND EQUIPMENT - NET 15,785 10,355
NONCURRENT ASSETS:
Software development costs - net 10,808 9,932
Intangibles - net 5,973 2,130
Other noncurrent assets 569 364
================ ================
TOTAL $ 153,284 $ 84,323
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,562 $ 4,244
Accrued compensation 4,614 6,181
Other accrued expenses 6,854 3,584
Deferred revenue 10,431 13,808
Income taxes payable - 1,226
---------------- ----------------
Total current liabilities 26,461 29,043
LONG-TERM DEBT 295 220
DEFERRED INCOME TAXES 685 1,467
STOCKHOLDERS' EQUITY
Preferred stock -- --
Common stock, $.002 par value; 100,000,000 shares authorized;
shares issued, 24,579,763 at August 31, 1997; 22,429,414 at
February 28, 1997; shares outstanding, 23,827,253 at August 31,
1997; 21,676,904 at February 28, 1997 49 44
Additional paid-in capital 106,565 38,837
Retained earnings 19,647 14,970
Translation adjustment 299 459
Treasury stock - 752,510 shares, at cost (717) (717)
---------------- ----------------
Total stockholders' equity 125,843 53,593
================ ================
TOTAL $ 153,284 $ 84,323
================ ================
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE> 4
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
August 31, August 31,
-------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Software products $ 21,104 $ 10,376 $ 40,944 $ 19,109
Consulting, maintenance
and other services 16,665 10,559 31,005 20,267
----------- ----------- ----------- -----------
Total revenues 37,769 20,935 71,949 39,376
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Cost of software sold 2,522 893 4,703 2,237
Cost of consulting, maintenance
and other services 7,406 4,621 13,977 8,663
Sales and marketing 13,880 7,287 27,032 13,420
Product development 6,863 3,996 13,088 7,553
General and administrative 3,187 2,014 6,241 3,752
Purchased research and development - - - 3,697
----------- ----------- ----------- -----------
Total operating expenses 33,858 18,811 65,041 39,322
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 3,911 2,124 6,908 54
OTHER INCOME - NET 379 244 703 461
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 4,290 2,368 7,611 515
PROVISION FOR INCOME TAXES 1,653 921 2,934 1,646
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 2,637 $ 1,447 $ 4,677 $ (1,131)
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE $ 0.11 $ 0.06 $ 0.19 $ (0.05)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
AND EQUIVALENT SHARES OUTSTANDING 24,713 22,378 24,329 21,092
=========== =========== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE> 5
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Six months ended
August 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,677 $ (1,131)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 6,645 3,773
Write-off of purchased research and development - 3,697
Loss on property disposal 3 28
Changes in assets and liabilities:
Accounts receivable (3,456) (1,335)
Other current assets (648) 318
Other noncurrent assets (197) 19
Accounts payable and accrued expenses 568 (2,034)
Deferred revenue (3,377) (114)
Deferred income taxes and income taxes payable (600) 1,242
----------- -----------
Net cash provided by operating activities 3,615 4,463
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (4,529) (3,582)
Purchase of property and equipment (7,481) (2,660)
Capitalization of software development costs (4,231) (3,093)
Purchase of software licenses for resale (199) (669)
Purchase of marketable securities (67,297) (2,299)
Sale of marketable securities 17,270 5,414
----------- -----------
Net cash used in investing activities (66,467) (6,889)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit 6,400 -
Payments under line of credit (6,400) -
(Proceeds) payments on long-term debt and capital lease
obligations 78 (104)
Proceeds from issuance of common stock 62,025 -
Proceeds from employee stock purchase plan 756 296
Proceeds from exercises of stock options 2,264 922
----------- -----------
Net cash provided by financing activities 65,123 1,114
----------- -----------
EFFECTS OF EXCHANGE RATES ON CASH BALANCES (169) 43
----------- -----------
NET INCREASE (DECREASE) IN CASH 2,102 (1,269)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,543 4,921
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,645 $ 3,652
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
5
<PAGE> 6
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AUGUST 31, 1997
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
reporting and in accordance with the instructions to the Quarterly
Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and notes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting only of normal,
recurring adjustments) which are necessary for a fair presentation of
the unaudited results for the interim periods presented have been
included. The results of operations for the periods presented herein
are not necessarily indicative of the results of operations for the
entire fiscal year, which ends on February 28, 1998.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto for the
fiscal year ended February 28, 1997, included in the Annual Report on
Form 10-K of Manugistics Group, Inc. ("the Company") for that year.
2. Acquisitions
In June 1997, the Company acquired Synchronology Group Limited, a
closely-held company which provides manufacturing planning and
scheduling consulting services. In March 1997, the Company entered into
a definitive agreement to acquire certain assets of Information
Resources, Inc. ("IRI"). The total purchase price of these acquisitions
was approximately $3,200,000 and $1,900,000, respectively, primarily
comprised of cash, assumed liabilities and acquisition costs. The
transactions are being accounted for under the purchase method.
Accordingly, the purchase prices were preliminarily allocated to
certain identifiable tangible assets and liabilities based on their
respective fair market values. The excess of the purchase price over
these estimated fair market values of the net assets acquired under
both transactions was accounted for as goodwill, which is being
amortized on a straight-lined basis over five years.
The condensed consolidated financial statements include the operating
results of each acquisition from the date of the acquisition. Pro forma
revenues, income, and earnings per share of the Company, assuming the
acquisitions had been made at the beginning of each period presented,
would not be materially different from the results reported.
The operating results also would not have been materially different
assuming the acquisition of Avyx, Inc., which was made during the six
months ended August 31, 1996, had been made at the beginning of that
period. (See further discussion in Note 4 of the Company's Form 10-K
for the fiscal year ended February 28, 1997).
3. Commitments
In March 1997, the Company entered into a reseller and marketing
agreement with IRI, of which the Company guarantees certain revenue
levels to IRI in the aggregate amount of $16,500,000
6
<PAGE> 7
over several years. In the event that the activities performed by the
Company through joint marketing arrangements with IRI do not meet the
minimum amounts, the Company may be obligated to pay the difference.
The Company anticipates that it will be able to meet the revenue levels
and accordingly does not expect to be obligated to make such payments.
4. Supplemental Information of Noncash Investing and Financing Activities
During the six months ended August 31, 1997 and 1996, the Company
recorded income tax benefits of $2,970,000 and $249,000, respectively,
relating to the exercise of employee stock options. The benefit was
recorded as an increase to additional paid-in capital.
Cash paid for income taxes amounted to approximately $3,200,000 and
$1,035,000 for the six months ended August 31, 1997 and 1996,
respectively.
5. Stockholders' Equity
Public Stock Offering
On August 18, 1997, the Company completed a public offering of 1,600,000
newly issued shares of common stock. The proceeds to the Company were
approximately $62,025,000, net of expenses paid to date.
Increase in Authorized Common Stock
On July 25,1997, the shareholders approved an increase in the Company's
authorized shares of $.002 par value common stock to 100,000,000
shares.
Stock Split
On May 9, 1997, the Board of Directors of the Company declared a
two-for-one stock split on the Company's common stock, paid in the form
of a 100% stock dividend on June 11, 1997 to shareholders of record as
of May 23, 1997. The shares outstanding, weighted average shares,
amounts per share, and all other references to shares of common stock
reported have been restated to give effect to the stock dividend.
6. New Accounting Pronouncements
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), was issued and will be effective for
the Company's 1998 fiscal year. The Company's computation of basic
earnings per share under SFAS No. 128, which excludes the dilutive
effect of stock options, would have been $ .12 and $ .07 for the
quarters ended August 31, 1997 and 1996, respectively and $ .21 and
$(.05) for the six months ended August 31, 1997 and 1996, respectively.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Manugistics Group, Inc. ("Manugistics" or the "Company") develops,
markets and supports software products for synchronized supply chain
management(TM) and provides related services. Synchronized supply chain
management refers to managing the complex interactions involved in the flows of
products through a supply chain, and involves forecasting product demand and
coordinating the timing of distribution, manufacturing, procurement and
transportation activities to meet this demand, not only across an entire
enterprise, but also among an enterprise and its suppliers and customers. The
Company believes it is the only provider of an integrated suite of strategic,
tactical and operational supply chain planning tools and products that address
the four key operational areas of supply chain management: demand planning,
supply planning, manufacturing scheduling and transportation management.
RESULTS OF OPERATIONS
REVENUES:
Software products. The Company's software products license revenues
increased because the Company increased the number of its supply chain sales
employees and the Company's sales productivity initiatives generated further
results, as well as because of increased market acceptance of such products. As
a percentage of total revenues, software products revenues increased to
approximately 56%. This increase occurred mainly because the Company increased
its resources devoted to generating software products revenues more rapidly
than its resources for producing services revenues. Although the percentage of
total revenues represented by software products revenues has varied in the past
and is likely to continue to vary, for fiscal 1998, management of the Company
anticipates that the percentage of total revenues represented by software
products revenues is likely to fall in the range of the mid to upper 50s. See
"Forward Looking Statements."
<TABLE>
<CAPTION>
Software products revenues Three months ended Six months ended
------------------------------ ------------------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1997 Change 1996 1997 Change 1996
-------- -------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Supply chain management $20,350 110% $ 9,670 $39,494 123% $17,730
Percentage of total revenues 53.9% 46.2% 54.9% 45.0%
Personal systems $ 754 7% $ 706 $ 1,450 5% $ 1,379
Percentage of total revenues 2.0% 3.4% 2.0% 3.5%
--------- --------- --------- ---------
Total software products revenues $21,104 103% $10,376 $40,944 114% $19,109
Percentage of total revenues 55.9% 49.6% 56.9% 48.5%
</TABLE>
Supply chain management. Software products license revenues increased
for the quarter and six months ended August 31, 1997 because of increases in
both the number of licenses and the average license fee per transaction. These
increases resulted principally from the Company's increase in the number of its
sales employees and because the Company's sales productivity initiatives
generated further results. In addition, revenues increased because of increased
market acceptance of the Company's products, including its entirely new
products and latest versions. This increased acceptance resulted in part from
the recognition by prospects and
8
<PAGE> 9
customers that they could rapidly realize significant benefits from effective
supply chain management, which led some companies to license more of the
Company's products or to amend their existing licenses to permit a greater
number of users.
The Company has derived a significant majority of its software license
revenues from direct sales. However, the Company has embarked on a strategy of
expanding its product distribution through alliances with complementary
software vendors. Consequently, although the proportion in any single quarter
has varied in the past and is likely to continue to vary, the Company
anticipates that software products revenues derived from indirect sales by
these complementary vendors might increase as a proportion of software license
revenues in future quarters. See "Forward Looking Statements."
Personal systems. Software products license revenues increased slightly
for the quarter and six months ended August 31, 1997 primarily because the
Company released a new version of Statgraphics during the quarter ended May 31,
1997. Software products revenues increased in the quarter and six months
despite the fact that, during the past two fiscal years, the Company has
decreased the resources dedicated to Statgraphics, and many customers and
prospective customers have selected competing products. The increases
notwithstanding, management of the Company believes that demand for
Statgraphics will continue to decrease. As a percentage of total revenues,
personal systems software products decreased to approximately 2%.
Consulting, maintenance and other services. Revenues from consulting,
maintenance and other services increased for the quarter and six months ended
August 31, 1997 principally as a result of increased demand for supply chain
management consulting and maintenance services from a growing base of customers
that have licensed the Company's supply chain management software.
<TABLE>
<CAPTION>
Consulting, maintenance and Three months ended Six months ended
other services ------------------------------ ------------------------------
August 31, August 31, August 31, August 31,
1997 Change 1996 1997 Change 1996
-------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Supply chain management $16,483 59% $10,347 $30,615 54% $19,830
Percentage of total revenues 43.6% 49.4% 42.6% 50.4%
Personal systems $ 182 -14% $ 212 $ 390 -11% $ 437
Percentage of total revenues 0.5% 1.0% 0.5% 1.1%
-------- --------- --------- --------
Total consulting, maintenance
and other services $16,665 58% $10,559 $31,005 53% $20,267
Percentage of total revenues 44.1% 50.4% 43.1% 51.5%
</TABLE>
Supply chain management. Revenues from consulting and other services
increased in both North America and Europe because of (1) new clients licensing
increased numbers of products and users in recent quarters, which generally
involves implementation and other consulting services, and (2) established
clients licensing additional products and users, which also generates further
demand for consulting services.
Maintenance revenues have increased following the increase in the
installed base of customers that have licensed the Company's software products
and entered into maintenance contracts. Maintenance revenues tend to track
software products sold in prior periods. In the past three fiscal years,
approximately 90% to 95% of customers with maintenance contracts have renewed
these contracts.
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<PAGE> 10
Personal systems. Consulting, maintenance and other services revenues
decreased because of a decline in maintenance revenues. This decline followed
the erosion of the installed base of Statgraphics users, which resulted from
the decreased demand for this product over the past few fiscal years.
OPERATING EXPENSES:
<TABLE>
<CAPTION>
Three months ended Six months ended
-------------------------- --------------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1997 Change 1996 1997 Change 1996
-------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Cost of software sold $ 2,522 182% $ 893 $4,703 110% $ 2,237
Percentage of total revenues 6.7% 4.3% 6.5% 5.7%
Cost of consulting, maintenance,
and other services $ 7,406 60% $ 4,621 $13,977 61% $ 8,663
Percentage of total revenues 19.6% 22.1% 19.4% 22.0%
Sales and marketing $13,880 90% $ 7,287 $27,032 101% $13,420
Percentage of total revenues 36.7% 34.8% 37.6% 34.1%
Product development $ 6,863 72% $ 3,996 $13,088 73% $ 7,553
Percentage of total revenues 18.2% 19.1% 18.2% 19.2%
General and administrative $ 3,187 58% $ 2,014 $ 6,241 66% $ 3,752
Percentage of total revenues 8.4% 9.6% 8.7% 9.5%
Purchased research and
development $ - N/M $ - $ - N/M $ 3,697
Percentage of total revenues 0.0% 0.0% 0.0% 9.4%
------- ------- ------- -------
Total operating expenses $33,858 80% $18,811 $65,041 65% $39,322
Percentage of total revenues 89.6% 89.9% 90.4% 99.9%
</TABLE>
Cost of software sold. Cost of software sold consists of 1)
amortization of capitalized software development costs and 2) cost of goods and
other, which includes royalty fees associated with third-party software
included with Manugistics software or jointly-developed software that is
licensed to customers. The Company amortizes capitalized software development
costs over a product's estimated economic life, generally two years, commencing
when a product is available for general commercial release.
<TABLE>
<CAPTION>
Cost of software sold Three months ended Six months ended
-------------------------- --------------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1997 Change 1996 1997 Change 1996
-------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Amortization of capitalized
software $ 1,771 126% $ 782 $3,224 81% $ 1,784
Pct of software products revenues 8.4% 7.5% 7.9% 9.3%
Cost of goods and other $ 751 577% $ 111 $1,479 226% $ 453
Pct of software products revenues 3.6% 1.1% 3.6% 2.4%
------- ------- ------ -------
Cost of software sold $ 2,522 182% $ 893 $4,703 110% $ 2,237
Pct of software products revenues 11.9% 8.6% 11.5% 11.7%
</TABLE>
The cost of software sold increased because amortization increased
following the general commercial release of additional supply chain management
software products. The amount of capitalized software development costs has
increased in recent years as the Company has increased its gross product
development expenditures for supply chain management software. Amortization
also increased because the Company wrote off capitalized costs relating to the
development of some prior versions of its software. In addition, royalty fees
increased as the
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<PAGE> 11
number of licenses to customers involving third party or jointly developed
software increased. The Company believes that, in general, royalty fees are
likely to continue to increase. See "Forward Looking Statements." Because of
the increases in amortization and royalties in the quarter ended August 31,
1997, cost of software sold increased more rapidly than software products
revenues, which caused cost of software sold to increase as a percentage of
software products revenues. For the six month period, although increases in
royalties and amortization caused the cost of software sold to increase, it did
not increase as rapidly as total revenues during that period, which caused this
line item to decrease as a percentage of software products revenues.
Cost of consulting, maintenance and other services. The cost of
consulting, maintenance and other services increased primarily because the
Company added personnel in both North America and Europe to provide the
consulting and maintenance services that generated the corresponding increase
in supply chain management revenues from consulting, maintenance and other
services. The additional personnel included employees who joined the Company
following the acquisition of Synchronology Group Limited, a closely held firm
that provides manufacturing planning and scheduling consulting services, in
June 1997. See "Liquidity and Capital Resources."
As a percentage of consulting, maintenance and other services revenues,
the cost of consulting, maintenance and other services increased mainly because
of the amount of expenses associated with new employees and because of the
timing delays between the dates that these employees began work and the dates
they first become productive after training.
Sales and marketing. Sales and marketing expenses increased because the
Company added sales employees in North America, Europe and the Asia/Pacific
region, and incurred higher commissions as a result of greater software
products license revenues. In addition, the Company incurred costs to establish
new offices or build up its presence in a few foreign markets, and increased
its marketing expenses in connection with expanded product offerings. As a
percentage of total revenues, sales and marketing expenses increased
principally because these expenses increased at a more rapid rate than total
revenues. As it pursues its strategy of expanding its business into new
geographic markets, new industries and expanded distribution channels, the
Company is continuing to hire and train additional sales and marketing
employees and to make other sales and marketing expenditures. See "Forward
Looking Statements."
Product development. The Company records product development expenses
net of capitalized software development costs.
<TABLE>
<CAPTION>
Product development expenses Three months ended Six months ended
-------------------------- --------------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1997 Change 1996 1997 Change 1996
-------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Gross product development costs $ 9,098 63% $ 5,586 $17,319 63% $10,647
Percentage of total revenues 24.1% 26.7% 24.1% 27.0%
Less: Capitalized product development costs $ 2,235 41% $ 1,590 $ 4,231 37% $ 3,094
Percentage of gross prod. dev. costs 24.6% 28.5% 24.4% 29.1%
------- ------- ------- -------
Product development expenses $ 6,863 72% $ 3,996 $13,088 73% $ 7,553
Percentage of total revenues 18.2% 19.1% 18.2% 19.2%
</TABLE>
Gross product development costs increased primarily because the Company
employed more developers of supply chain management software. The Company hired
these developers to develop new software products and new versions of existing
products, and to incorporate new
11
<PAGE> 12
technologies into the Company's product offerings. As a percentage of total
revenues, net product development expenses decreased largely because these
expenses did not increase as rapidly as total revenues. In fiscal 1998, the
Company has made and plans to continue to make significant product development
expenditures as it pursues its strategy of rapidly developing and delivering
new products, features, functions and integration to software products of
other vendors. See "Forward Looking Statements."
General and administrative. General and administrative expenses
increased primarily because of expenses associated with supporting an
organization with more employees and a greater geographic scope. As a
percentage of total revenues, general and administrative expenses decreased
because these expenses did not increase as rapidly as total revenues, in part
because the Company was able to leverage its base of administrative resources
to support a larger organizational structure.
OTHER INCOME-NET:
<TABLE>
<CAPTION>
Three months ended Six months ended
--------------------------- -----------------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1997 Change 1996 1997 Change 1996
-------- ------ -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Other income-net $379 55% $244 $703 52% $461
Percentage of total revenues 1.0% 1.2% 1.0% 1.2%
</TABLE>
Other income-net includes income from short term investments, interest
income and expense, foreign currency exchange gains or losses, and other gains
or losses. Other income increased primarily because interest income increased.
In future quarters, pending the application to other uses of the net proceeds
of the public offering of common stock completed in August 1997, the Company
believes that there will be increases in income from short term investments as
a result of the investment of these net proceeds.
PROVISION FOR INCOME TAXES:
<TABLE>
<CAPTION>
Three months ended Six months ended
--------------------------- -----------------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1997 Change 1996 1997 Change 1996
-------- ------ -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income taxes $1,653 79% $ 921 $2,934 78% $1,646
Percentage of income
before taxes 38.5% 38.9% 38.5% NM
</TABLE>
The effective tax rate represented by the Company's provision for
income taxes was approximately 39% for both the quarter and six months ended
August 31, 1997 and the quarter ended August 31, 1996. The effective tax rate
represented by the Company's provision for income taxes in the six months ended
August 31, 1996 would have been approximately 39%, disregarding a pre-tax loss,
but the actual effective rate was significantly higher, largely because the
expenses associated with the Company's write-off of purchased research and
development costs in connection with the Avyx, Inc. acquisition were not
deductible for tax purposes. Management of the Company believes that, in fiscal
1998, the effective tax rate of the Company on a consolidated basis is likely
to be approximately 39%, excluding one-time charges taken in connection with,
for example, acquisitions or other similar transactions. This estimate is based
on current domestic and foreign tax law and the actual effective tax rate may
differ.
12
<PAGE> 13
NET INCOME (LOSS) AND EARNINGS (LOSS) PER SHARE:
<TABLE>
<CAPTION>
Three months ended Six months ended
--------------------------- -----------------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1997 Change 1996 1997 Change 1996
-------- ------ -------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) 2,637 82% 1,447 4,677 NM (1,131)
Percentage of total revenues 7.0% 6.9% 6.5% NM
Earnings (loss) per share $ 0.11 83% $ 0.06 $ 0.19 NM $ (0.05)
Weighted average common shares
and equivalent shares outstanding 24,713 10% 22,378 24,329 15% 21,092
</TABLE>
Net income is derived by taking total revenues less total operating
expenses, determining the effect of other income-net, and taking the resulting
income before taxes and subtracting the income tax provision. Net income
increased for the quarter and six months ended August 31, 1997 in proportion to
the increases in total revenues and total operating expenses. The increase in
per-share earnings was not quite as great, largely because of an increase in
the number of weighted average common shares and equivalent shares outstanding
as a result of the completion of an offering of 1.6 million newly-issued shares
of common stock during the last month of the quarter, as well as the issuance
of shares upon the exercise of employee stock options and purchases through the
employee stock purchase plan.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
As of
--------------------------------------
August 31, February 28,
1997 1997
----------- --------------
<S> <C> <C>
Working capital $93,688 $32,499
Cash, cash equivalents
and marketable securities $74,303 $22,174
</TABLE>
The Company has historically financed its growth primarily through
funds generated from operations and through proceeds from offerings of capital
stock. The increase in working capital at August 31, 1997 from February 28,
1997 resulted principally from increases in the Company's 1) cash and
marketable securities, as a result of the Company's offering of common stock
that closed during the quarter ended August 31, 1997, and, to a lesser extent,
2) accounts receivable, mainly because of the increase in software products
license revenues and the timing of license transactions and collections.
The Company's operating activities provided cash of $3.6 million.
Operating cash flows increased largely because the cash flows resulting from
net income before depreciation and amortization were only partially offset by
an increase in accounts receivable and a decrease in deferred revenues. At
August 31, 1997, accounts receivable were $41.4 million, compared to $37.1
million at February 28, 1997, primarily as a result of the increase in software
products license revenues and the timing of software license transactions and
collections. Deferred revenue
13
<PAGE> 14
decreased from $13.8 million at February 28, 1997 to $10.4 million at August 31,
1997 because a portion of the software license component of the deferred revenue
amount was recognized.
Investing activities used cash of $66.5 million, largely as a result of
the purchase of marketable securities using proceeds from the public offering of
common stock completed during the quarter. Sales of marketable securities
provided cash, but the amounts provided were more than offset by cash used for
purchases of marketable securities, property, computers and other equipment,
acquisitions involving Information Resources, Inc. ("IRI") and Synchronology
Group Limited and for software development costs that were capitalized.
Financing activities provided cash of $65.1 million. In the quarter
ended August 31, 1997, cash from financing activities was derived primarily
from the sale of common stock in a public offering, the exercise of employee
stock options and the purchase of shares pursuant to the Company's employee
stock purchase program.
As of September 1997, the Company renewed its unsecured committed
revolving credit facility with a commercial bank on substantially the same
terms. Under the terms of the facility, the Company may request advances in the
aggregate amount of up to $10 million. The Company may make borrowings under
the facility for short-term working capital purposes or for acquisitions.
(Acquisition-related borrowings are limited to $7.5 million per acquisition.)
The facility contains certain financial covenants that the Company believes are
typical for a facility of this nature and amount. This facility will expire in
September 1998, unless renewed. There were no amounts outstanding under this
facility at August 31, 1997.
In June 1997, the Company acquired all of the outstanding capital stock
of Synchronology Group Limited ("SGL"), a closely held firm that provides
manufacturing planning and scheduling consulting services. SGL maintains
offices at its headquarters in the United Kingdom and in Belgium. Pursuant to
the merger agreement, the Company paid approximately $2.9 million cash. This
firm provides the Company with additional domain knowledge about manufacturing
planning and scheduling and additional resources to serve clients in Europe and
other regions.
The Company investigates potential candidates for acquisition, joint
venture opportunities or other relationships on an ongoing basis. The Company
is currently involved in the evaluation of, and discussions with, one or more
such candidates. Depending on certain factors, including the amount, nature,
method and timing of the consideration to be paid by the Company, any such
acquisitions, transactions or relationships might result in a decrease in
working capital.
The Company believes that existing cash balances, marketable
securities, funds generated from operations and amounts available under the
revolving credit facility will be sufficient to meet its anticipated liquidity
and working capital requirements for the next 12 to 24 months. If the Company
decides to expand its operations more rapidly, to broaden or enhance its
products more rapidly, to acquire businesses or technologies or to make other
significant expenditures to respond to market opportunities or competitive
pressures, then the Company may need additional funds at an earlier time.
14
<PAGE> 15
FORWARD LOOKING STATEMENTS
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of this Quarterly Report on Form 10-Q contains
certain forward looking statements that are subject to a number of risks and
uncertainties. In addition, the Company may publish or make forward looking
statements from time to time relating to such matters as anticipated financial
performance, business prospects and strategies, technological developments, new
products, research and development activities and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for forward
looking statements. In order to comply with the terms of the safe harbor, the
Company notes that a variety of factors could cause the Company's actual
results and experience to differ materially from the anticipated results or
other expectations expressed in the Company's forward looking statements in
this Quarterly Report or elsewhere. The risks and uncertainties that may affect
the business, operating results or financial condition of the Company include
those set forth in the Company's Prospectus dated August 13, 1997, such as the
following:
Revenues for any period depend on the volume, timing and size of
license agreements. The timing of license agreements is difficult to forecast
because software sales cycles are affected by the size of transactions and
other external factors such as general business or economic conditions or
competitors' actions. A small variation in the timing of software licensing
transactions, particularly near the end of any quarter or year, can cause
significant variations in software products license revenues in any period.
The Company believes that the market for supply chain management
software is expanding rapidly. If market demand for the Company's products
(including jointly-developed products) does not continue to grow rapidly,
because of such factors as adverse changes in domestic or international
business and economic conditions, the timely availability and acceptance of the
Company's products, technological change or the effect of competitive products
and pricing, software license revenue growth could be adversely affected. If
competitors make acquisitions of other competitors or establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address the supply chain management needs of prospects, or if
certain Enterprise Resource Planning ("ERP") software vendors that have
announced plans to develop or incorporate functionality that could compete with
the Company's products successfully develop and market such functionality,
software license revenue growth could be adversely affected.
There can be no assurance that the Company will be able to attract
complementary software vendors, consulting firms or other organizations that
will be able to market the Company's products effectively or that will be
qualified to provide timely and cost-effective customer support and service. In
addition, there can be no assurance that any organization will continue its
involvement with the Company and its products, and the loss of relationships
with important organizations could materially adversely affect the Company's
results of operations.
The timing of releases of the Company's software products can be
affected by client needs, marketplace demands and technological advances.
Development plans frequently change, and it is difficult to predict with
accuracy the release dates for products in development.
In March 1997, the Company entered into agreements with IRI pursuant to
which some employees have joined the Company and pursuant to which Manugistics
might acquire certain
15
<PAGE> 16
products of IRI (subject to the satisfaction of certain contingencies). In June
1997, the Company acquired all of the outstanding capital stock of Synchronology
Group Limited. Management of the Company must integrate the employees or
operations that were the subject of these transactions into Manugistics. There
can be no assurance that the Company will be able to integrate these employees
or operations effectively or that the Company will realize the expected benefits
of these transactions. In addition, there can be no assurance that the Company
will not experience the loss of key employees of these operations. The process
of integrating the acquired employees and operations into the Company might
result in unanticipated operational difficulties and expenditures. In addition,
there can be no assurance that the anticipated benefits of any specific
acquisition will be realized.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
On July 25, 1997, the Company held its 1997 Annual Meeting of
Shareholders (the "Annual Meeting"). At the Annual Meeting, the shareholders
elected as Class II directors Joseph H. Jacovini (with 8,771,474 affirmative
votes and 90,843 votes withheld), and Thomas A. Skelton (with 8,771,574
affirmative votes and 90,743 votes withheld).
In addition to the election of the Class II directors at the Annual
Meeting, the shareholders approved an amendment to the Manugistics Group, Inc.
Amended and Restated Certificate of Incorporation to increase the number of
shares of common stock that the Company is authorized to issue from 30,000,000
shares to 100,000,000 shares (with 6,900,217 affirmative votes, 1,920,807
against, 41,293 abstentions and 0 non-votes).
The shareholders also approved an amendment of the Company's Employee
Stock Option Plan (the "Employee Plan") increasing the number of shares of
common stock reserved for issuance under the Employee Plan by 1,000,000 shares
(with 5,459,047 affirmative votes, 1,742,539 votes against, 25,967 abstentions
and 1,634,764 non-votes).
In addition, the shareholders approved an amendment to the 1994 Outside
Directors Non-Qualified Stock Option Plan to increase the number of shares of
common stock authorized to be issued under the plan by 80,000 shares (with
5,364,211 affirmative votes, 1,925,024 votes against, 27,686 abstentions and
1,545,396 non-votes).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
11 Statements Regarding Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended August 31, 1997.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Manugistics Group, Inc. has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
MANUGISTICS GROUP, INC.
(Registrant)
Date: October 10, 1997 By:/s/ William M. Gibson
---------------------
William M. Gibson
President, Chief Executive Officer and
Chairman of the Board of Directors
Date: October 10, 1997 By:/s/ Peter Q. Repetti
--------------------
Peter Q. Repetti
Vice President, Finance and Administration,
and Chief Financial Officer
(Principal Financial Officer and Chief
Accounting Officer)
17
<PAGE> 1
EXHIBIT 11
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
------------------------------ -----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted Average Number of Shares of Common Stock
Oustanding 22,657 21,206 22,205 21,092
Net Effect of Dilutive Stock Options Based on Treasury
Stock Method 2,056 1,172 2,124 -
------------- ------------- ------------- -------------
Weighted Average Shares Outstanding 24,713 22,378 24,329 21,092
============= ============= ============= =============
Net Income (Loss) $ 2,637 $ 1,447 $ 4,677 $ (1,131)
============= ============= ============= =============
Earnings (Loss) Per Share $ 0.11 $ 0.06 $ 0.19 $ (0.05)
============= ============= ============= =============
Fully-diluted Earnings (Loss) Per Share $ 0.11 $ 0.06 $ 0.19 $ (0.05)
============= ============= ============= =============
</TABLE>
Amounts have been adjusted to reflect the two-for-one stock split.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 10,645
<SECURITIES> 63,658
<RECEIVABLES> 43,004
<ALLOWANCES> 1,644
<INVENTORY> 351
<CURRENT-ASSETS> 120,149
<PP&E> 26,119
<DEPRECIATION> 10,334
<TOTAL-ASSETS> 153,284
<CURRENT-LIABILITIES> 26,461
<BONDS> 295
0
0
<COMMON> 49
<OTHER-SE> 125,794
<TOTAL-LIABILITY-AND-EQUITY> 153,284
<SALES> 40,944
<TOTAL-REVENUES> 71,949
<CGS> 4,703
<TOTAL-COSTS> 41,009
<OTHER-EXPENSES> 19,329
<LOSS-PROVISION> 921
<INTEREST-EXPENSE> (679)
<INCOME-PRETAX> 7,611
<INCOME-TAX> 2,934
<INCOME-CONTINUING> 4,677
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,677
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
