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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 NOVEMBER 30, 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)
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<S> <C>
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)
</TABLE>
(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 December 23, 1997.
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MANUGISTICS GROUP, INC.
TABLE OF CONTENTS
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Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
November 30, 1997 (unaudited) and February 28, 1997 3
Condensed Consolidated Statements of Income -
Three and nine months ended November 30, 1997 and 1996 (unaudited) 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended November 30, 1997 and 1996 (unaudited) 5
Notes to Condensed Consolidated Financial Statements - November 30, 1997 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
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November 30, February 28,
1997 1997
------------ ------------
(Unaudited)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,288 $ 8,543
Marketable securities 66,155 13,631
Accounts receivable (net of allowance for uncollectible accounts - 48,067 37,093
November 30, 1997, $2,124; February 28, 1997, $1,215)
Prepaid income taxes 1,664 -
Other current assets 4,231 2,275
------------ ------------
Total current assets 126,405 61,542
PROPERTY AND EQUIPMENT - NET 17,152 10,355
NONCURRENT ASSETS:
Software development costs - net 11,525 9,932
Intangibles - net 5,606 2,130
Other noncurrent assets 563 364
------------ ------------
TOTAL $ 161,251 $ 84,323
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABLITIES:
Accounts payable $ 3,439 $ 4,244
Accrued compensation 4,974 6,181
Other accrued expenses 6,541 3,584
Deferred revenue 12,479 13,808
Income taxes payable - 1,226
------------ ------------
Total current liabilities 27,433 29,043
LONG-TERM DEBT 339 220
DEFERRED INCOME TAXES 871 1,467
STOCKHOLDERS' EQUITY
Preferred stock -- --
Common stock, $.002 par value; 100,000,000 shares authorized;
shares issued, 24,657,352 at November 30, 1997; 22,429,414 at
February 28, 1997; shares outstanding, 23,904,842 at November 30,
1997; 21,676,904 at February 28, 1997 49 44
Additional paid-in capital 108,999 38,837
Retained earnings 23,652 14,970
Translation adjustment 625 459
Treasury stock - 752,510 shares, at cost (717) (717)
------------ ------------
Total stockholders' equity 132,608 53,593
------------ ------------
TOTAL $ 161,251 $ 84,323
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See accompanying notes to the financial statements.
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MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
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Three months ended Nine months ended
November 30, November 30,
------------------------- -------------------------
1997 1996 1997 1996
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REVENUES:
Software products $ 22,600 $ 12,281 $ 63,919 $ 31,390
Consulting, maintenance
and other services 18,668 11,407 49,673 31,674
---------- ---------- ---------- ----------
Total revenues 41,268 23,688 113,592 63,064
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Cost of software sold 2,639 1,053 7,718 3,290
Cost of consulting, maintenance
and other services 8,539 4,915 22,516 13,578
Sales and marketing 13,970 8,237 41,002 21,657
Product development 7,582 4,432 20,670 11,985
General and administrative 3,181 2,161 9,421 5,913
Purchased research and development - - - 3,697
---------- ---------- ---------- ----------
Total operating expenses 35,911 20,798 101,327 60,120
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 5,357 2,890 12,265 2,944
OTHER INCOME - NET 1,150 277 1,853 738
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 6,507 3,167 14,118 3,682
PROVISION FOR INCOME TAXES 2,502 1,220 5,436 2,866
---------- ---------- ---------- ----------
NET INCOME $ 4,005 $ 1,947 $ 8,682 $ 816
========== ========== ========== ==========
EARNINGS PER SHARE $ 0.15 $ 0.08 $ 0.34 $ 0.04
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
AND EQUIVALENT SHARES OUTSTANDING 26,607 23,180 25,658 22,576
========== ========== ========== ==========
</TABLE>
See accompanying notes to the financial statements.
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MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
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Nine months ended
November 30,
--------------------------
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,682 $ 816
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 11,134 5,750
Write-off of purchased research and development - 3,697
Other (4) 95
Changes in assets and liabilities:
Accounts receivable (10,163) (4,829)
Other current assets (1,913) 162
Other noncurrent assets (192) 6
Accounts payable and accrued expenses 1,156 261
Deferred revenue (1,329) 1,623
---------- ----------
Net cash provided by operating activities 7,371 7,581
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (4,529) (3,582)
Purchase of property and equipment (10,615) (4,744)
Capitalization of software development costs (6,797) (4,813)
Purchase of software licenses for resale (393) (879)
(Purchase) sale of marketable securities - net (52,524) 4,965
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Net cash used in investing activities (74,858) (9,053)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations-net (176) (247)
Net proceeds from issuance of common stock 61,985 -
Proceeds from stock options and stock purchases 3,268 1,767
---------- ----------
Net cash provided by financing activities 65,077 1,520
---------- ----------
EFFECTS OF EXCHANGE RATES ON CASH BALANCES 155 514
---------- ----------
NET (DECREASE) INCREASE IN CASH (2,255) 562
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,543 4,921
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,288 $ 5,483
========== ==========
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See accompanying notes to the financial statements.
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MANUGISTICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 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
the estimated fair market value of the net assets acquired under each
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 nine
months ended November, 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, in which the Company has guaranteed certain revenue
levels to IRI in the aggregate amount of $16,500,000
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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 nine months ended November 30, 1997 and 1996, the Company
recorded income tax benefits of $5,123,000 and $1,071,000,
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 $3,341,000 and
$1,220,000 for the nine months ended November 30, 1997 and 1996,
respectively.
5. Stockholders' Equity
Public Stock Offering
In August 1997, the Company completed a public offering of
1,600,000 newly issued shares of common stock. The proceeds to the
Company were approximately $61,985,000, net of offering expenses.
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, which was 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 $ .17 and $ .09 for the
quarters ended November 30, 1997 and 1996, respectively and $ .38 and
$ .04 for the nine months ended November 30, 1997 and 1996,
respectively.
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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.
Software products revenues increased to approximately 55% of total revenues in
the quarter ended November 30, 1997. 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."
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Software products revenues Three months ended Nine months ended
----------------------------------- -------------------------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1997 Change 1996 1997 Change 1996
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Supply chain management $ 21,900 92% $ 11,436 $ 61,768 112% $ 29,166
Percentage of total revenues 53.1% 48.3% 54.4% 46.2%
Personal systems $ 700 -17% $ 845 $ 2,151 -3% $ 2,224
Percentage of total revenues 1.7% 3.6% 1.9% 3.5%
----------- ----------- ------------- ------------
Total software products revenues $ 22,600 84% $ 12,281 $ 63,919 104% $ 31,390
Percentage of total revenues 54.8% 51.8% 56.3% 49.8%
</TABLE>
Supply chain management. Software products license revenues increased
for the quarter and nine months ended November 30, 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 recently introduced
products and the latest versions of established products. This increased
acceptance resulted in part from the recognition by prospects and customers that
they could rapidly realize significant benefits
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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 historically 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 vendors. This strategy of developing alliances is still in its
early stages and, during the next few years, the number of software license
transactions involving complementary vendors is likely to be relatively small
and to fluctuate. Consequently, in any single quarter, the amount and proportion
of software products revenues contributed by indirect sales by these vendors is
likely to vary. See "Forward Looking Statements."
Personal systems. Software products license revenues decreased for the
quarter and nine months ended November 30, 1997 primarily because the Company
has decreased the resources dedicated to Statgraphics, and many customers and
prospective customers have selected competing products. 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
less than 2%.
Consulting, maintenance and other services. Revenues from consulting,
maintenance and other services increased for the quarter and nine months ended
November 30, 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.
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Consulting, maintenance and Three months ended Nine months ended
other services ----------------------------------- -------------------------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1997 Change 1996 1997 Change 1996
----------- -------- ----------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Supply chain management $ 18,537 65% $ 11,221 $ 49,185 58% $ 31,050
Percentage of total revenues 44.9% 47.4% 43.3% 49.2%
Personal systems $ 131 -30% $ 186 $ 488 -22% $ 624
Percentage of total revenues 0.3% 0.8% 0.4% 1.0%
----------- ----------- ------------- ------------
Total consulting, maintenance
and other services $ 18,668 64% $ 11,407 $ 49,673 57% $ 31,674
Percentage of total revenues 45.2% 48.2% 43.7% 50.2%
</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
leads to implementation and other consulting services, (2) established clients
licensing additional products, which also generates further demand for
consulting services and (3) consulting services provided by employees who joined
the Company in June 1997 in connection with Manugistics' acquisition of
Synchronology Group Limited ("SGL"). SGL provides manufacturing planning and
scheduling consulting services, and has offices in the United Kingdom and
Belgium.
Maintenance revenues have increased following the increase in the
installed base of customers that have licensed the Company's software products
and entered into annual maintenance contracts. Maintenance revenues tend to
track software products sold in prior
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periods. In the past three fiscal years, approximately 90% to 95% of customers
with maintenance contracts have renewed these contracts.
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
customers and prospective customers having selected competing products.
OPERATING EXPENSES:
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Three months ended Nine months ended
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Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1997 Change 1996 1997 Change 1996
----------- -------- ----------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cost of software sold $ 2,639 151% $ 1,053 $ 7,718 135% $ 3,290
Percentage of total revenues 6.4% 4.4% 6.8% 5.2%
Cost of consulting, maintenance,
and other services $ 8,539 74% $ 4,915 $ 22,516 66% $ 13,578
Percentage of total revenues 20.7% 20.7% 19.8% 21.5%
Sales and marketing $ 13,970 70% $ 8,237 $ 41,002 89% $ 21,657
Percentage of total revenues 33.9% 34.8% 36.1% 34.3%
Product development $ 7,582 71% $ 4,432 $ 20,670 72% $ 11,985
Percentage of total revenues 18.4% 18.7% 18.2% 19.0%
General and administrative $ 3,181 47% $ 2,161 $ 9,421 59% $ 5,913
Percentage of total revenues 7.7% 9.1% 8.3% 9.4%
Purchased research and development $ - N/M $ - $ - N/M $ 3,697
Percentage of total revenues 0.0% 0.0% 0.0% 5.9%
----------- ----------- ------------- ------------
Total operating expenses $ 35,911 73% $ 20,798 $ 101,327 69% $ 60,120
Percentage of total revenues 87.0% 87.8% 89.2% 95.3%
</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 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.
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Cost of software sold Three months ended Nine months ended
----------------------------------- -------------------------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1997 Change 1996 1997 Change 1996
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Amortization of capitalized software $ 2,156 148% $ 868 $ 5,381 103% $ 2,652
Pct of software products. rev.s 9.5% 7.1% 8.4% 8.4%
Cost of goods and other $ 483 161% $ 185 $ 2,337 266% $ 638
Pct of software products. rev.s 2.1% $ 1.5% 3.7% 2.0%
----------- ----------- ------------- ------------
Cost of software sold $ 2,639 151% $ 1,053 $ 7,718 135% $ 3,290
Pct of software products. rev.s 11.7% 8.6% 12.1% 10.5%
</TABLE>
The cost of software sold increased primarily because amortization
increased following the general commercial release of additional supply chain
management software products, the
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development costs of which had previously been capitalized. 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 some capitalized costs relating to the development of a prior version of
its software. Royalty fees also increased as the number of licenses to customers
involving third party software increased. Because of the increases in both of
the components of cost of software sold, 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.
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 (including SGL
employees) to provide consulting and maintenance services. In response to
increased demand for consulting services following increased demand for the
Company's software products, these additional employees helped generate the
corresponding increase in supply chain management revenues from consulting,
maintenance and other services.
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. Over the next few quarters, the
Company plans to continue to hire and train additional consulting employees at a
rate that might cause the cost of consulting, maintenance and other services to
represent a higher percentage of related revenues than in past quarters. See
"Forward Looking Statements."
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 its presence in these foreign markets and
with its expanded product offerings. In the quarter ended November 30, 1997, the
proportion of total revenues represented by sales and marketing expenses
decreased because total revenues increased more rapidly than these expenses. For
the nine month period, sales and marketing expenses increased as a percentage of
total revenues principally because, during the first half of the fiscal year,
these expenses increased more rapidly 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."
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Product development. The Company records product development expenses
net of capitalized software development costs.
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Product development expenses Three months ended Nine months ended
----------------------------------- -------------------------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1997 Change 1996 1997 Change 1996
----------- -------- ----------- ------------- -------- ------------
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Gross product development costs $ 10,147 65% $ 6,152 $ 27,467 64% $ 16,798
Percentage of total revenues 24.6% 26.0% 24.2% 26.6%
Less: Capitalized prod. dev. costs $ 2,565 49% $ 1,720 $ 6,797 41% $ 4,813
Percentage of gross prod. dev. costs 25.3% 28.0% 24.7% 28.7%
----------- ----------- ------------- ------------
Product development expenses $ 7,582 71% $ 4,432 $ 20,670 72% $ 11,985
Percentage of total revenues 18.4% 18.7% 18.2% 19.0%
</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 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 Nine months ended
----------------------------------- -------------------------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1997 Change 1996 1997 Change 1996
----------- -------- ----------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Other income -net $ 1,150 315% $ 277 $ 1,853 151% $ 738
Percentage of total revenues 2.8% 1.2% 1.6% 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.
Interest income grew mainly because of greater income from short term
investments following the investment of the net proceeds of the public offering
of common stock completed in August 1997. In future quarters, pending their
application to other uses, the investment of these proceeds will continue to
generate income.
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PROVISION FOR INCOME TAXES:
<TABLE>
<CAPTION>
Three months ended Nine months ended
----------------------------------- -------------------------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1997 Change 1996 1997 Change 1996
----------- -------- ----------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Income taxes $ 2,502 105% $ 1,220 $ 5,436 90% $ 2,866
Percentage of income before taxes 38.5% 38.5% 38.5% 77.8%
</TABLE>
The effective tax rate represented by the Company's provision for
income taxes was approximately 39% for both the quarter and nine months ended
November 30, 1997 and the quarter ended November 30, 1996. The effective tax
rate represented by the Company's provision for income taxes in the nine months
ended November 30, 1996 would have been approximately 39%, disregarding a
pre-tax loss, but the actual effective rate was significantly higher. The actual
rate was 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.
NET INCOME AND EARNINGS PER SHARE:
<TABLE>
<CAPTION>
Three months ended Nine months ended
----------------------------------- -------------------------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1997 Change 1996 1997 Change 1996
----------- -------- ----------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net income 4,005 106% 1,947 8,682 964% 816
Percentage of total revenues 9.7% 8.2% 7.6% 1.3%
Earnings per share $ 0.15 88% $ 0.08 $ 0.34 750% $ 0.04
Weighted average common shares
and equivalent shares outstanding 26,607 15% 23,180 25,658 14% 22,576
</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 for the
quarter and nine months ended November 30, 1997 increased largely because the
Company's operating margin (i.e., operating income as a percentage of total
revenues) and interest income increased. The operating margin increased in part
because software license revenues, which tend to have higher margins, increased
as a percentage of total revenues. Net income for the nine months ended November
30, 1996 included a non-recurring charge to operations of approximately $3.7
million. This charge was incurred in connection with the write-off of in-process
research and development costs as a result of the acquisition of Avyx, Inc. in
May 1996. The increase in per-share earnings was not quite as great as the
increase in net income, largely because of an increase in the number of weighted
average common shares and equivalent shares outstanding. This number increased
as a result of the completion of an offering
13
<PAGE> 14
of 1.6 million newly-issued shares of common stock during August 1997, as well
as the issuance of shares upon the exercise of employee stock options and
purchases through the employee stock purchase plan. See also Note 6 of Notes to
Condensed Consolidated Financial Statements regarding SFAS 128.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
As of
--------------------------------
November 30, February 28,
1997 1997
------------ -------------
<S> <C> <C>
Working capital $98,972 $32,499
Cash, cash equivalents
and marketable securities $72,443 $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 November 30, 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, which resulted from the increase in software products license
revenues and the timing of license transactions and collections.
During the nine months ended November 30, 1997, the Company's operating
activities provided cash of $7.4 million. Operating cash flows increased largely
because the cash flows resulting from net income before depreciation and
amortization were only partially offset by increases in accounts receivable and
other current assets. At November 30, 1997, accounts receivable were $48.1
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 decreased from $13.8
million at February 28, 1997 to $12.5 million at November 30, 1997 because a
portion of the software license component of the deferred revenue amount was
recognized.
Investing activities used cash of $74.9 million, largely as a result of
the purchase of marketable securities using proceeds from the public offering of
common stock completed in August 1997. 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. 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 sale 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
as before. Under the terms of the facility, the Company may borrow 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
14
<PAGE> 15
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 November 30, 1997.
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.
FORWARD LOOKING STATEMENTS AND CERTAIN RISK FACTORS
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, sales and marketing efforts,
technological developments, new products, research and development activities,
consulting services 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 domestic and international 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. However, if market demand for the Company's
products does not continue to grow rapidly, because of such factors as adverse
changes in domestic or international business and economic conditions or foreign
currency exchange rates, the timely availability and acceptance of the Company's
products, technological change or the effect of competitive products and
pricing, software license revenue growth and consulting, maintenance and other
services revenue growth or margins could be adversely affected. If competitors
make acquisitions of other competitors or establish cooperative relationships
among themselves or with third parties to enhance the ability of their products
to address the supply chain management needs of prospects, or if certain
Enterprise
15
<PAGE> 16
Resource Planning ("ERP") or other 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.
The Company is building and maintaining significant working
relationships with complementary vendors that the Company believes can play
important roles in marketing the Company's products. 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.
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. 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 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 or any future employees or operations
effectively or that the Company will realize the expected benefits of these or
any future transactions. In addition, there can be no assurance that the Company
will not experience the loss of key employees of these or any future acquired
operations. The process of integrating 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.
Many older computer systems and software products that are still in use
today were programmed to accept only two digit entries in the date code field
(i.e., "98" for "1998"). Systems and software containing two digit date code
fields need to be modified or upgraded to distinguish 21st century dates (e.g.,
"2002") from 20th century dates (e.g., "1902"), in order to avoid the
possibility of erroneous results or system failures.
Many companies might need to modify or upgrade their information
systems to address this "Year 2000" issue. The effects of this issue and of the
efforts by companies to address it are unclear. The Company believes that the
purchasing patterns of customers and prospective customers might be affected by
Year 2000 issues. Many companies are expending significant resources to correct
or patch their current software systems for Year 2000 compliance. These
expenditures might result in reduced funds available to purchase software
products such as those offered by the Company. Additionally, Year 2000 problems
inherent in a customer's other software programs might significantly limit that
customer's ability to realize the intended benefits
16
<PAGE> 17
to be derived from the Company's supply chain management software. These events
could result in a material adverse effect on the Company's business, operating
results or financial condition.
The Company utilizes other third party vendor equipment,
telecommunication products, and software products which may or may not be Year
2000 compliant. Although the Company is currently taking steps to address the
impact, if any, of the Year 2000 issue surrounding such third party products,
failure of any critical technology components to operate properly may have an
adverse impact on business operations or require the Company to incur
unanticipated expenses to remedy any problems.
Software products as complex as those offered by the Company might
contain undetected errors or failures when first introduced or when new versions
are released, including products intended to be Year 2000 compliant. There can
be no assurance that the Company's software products contain or will contain all
necessary date code changes or that errors will not be found in new products or
product enhancements after commercial release, resulting in loss of or delay in
market acceptance, which could have a material adverse effect upon the Company's
business, operating results and financial condition.
17
<PAGE> 18
PART II OTHER INFORMATION
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 November 30,
1997.
18
<PAGE> 19
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: January 2, 1998 By: /s/ William M. Gibson
---------------------------------
William M. Gibson
President, Chief Executive Officer
and Chairman of the Board of
Directors
Date: January 2, 1998 By: /s/ Peter Q. Repetti
---------------------------------
Peter Q. Repetti
Senior Vice President, Finance and
Administration, and Chief Financial
Officer
(Principal Financial Officer and
Chief Accounting Officer)
19
<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 Nine Months Ended
November 30, November 30,
----------------------- -----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted Average Number of Shares of Common Stock
Outstanding 23,895 21,477 22,768 20,912
Net Effect of Dilutive Stock Options Based on Treasury
Stock Method 2,712 1,703 2,890 1,664
--------- --------- --------- ---------
Weighted Average Shares Outstanding 26,607 23,180 25,658 22,576
========= ========= ========= =========
Net Income $ 4,005 $ 1,947 $ 8,682 $ 816
========= ========= ========= =========
Earnings Per Share $ 0.15 $ 0.08 $ 0.34 $ 0.04
========= ========= ========= =========
Fully-diluted Earnings Per Share $ 0.15 $ 0.08 $ 0.34 $ 0.04
========= ========= ========= =========
</TABLE>
Amounts have been adjusted to reflect the two-for-one stock split.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT FOR THE PERIOD ENDED NOVEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> NOV-30-1997
<CASH> 6,288
<SECURITIES> 66,155
<RECEIVABLES> 50,191
<ALLOWANCES> 2,124
<INVENTORY> 359
<CURRENT-ASSETS> 126,405
<PP&E> 29,144
<DEPRECIATION> 11,992
<TOTAL-ASSETS> 161,251
<CURRENT-LIABILITIES> 27,433
<BONDS> 339
0
0
<COMMON> 49
<OTHER-SE> 132,559
<TOTAL-LIABILITY-AND-EQUITY> 161,251
<SALES> 63,919
<TOTAL-REVENUES> 113,592
<CGS> 7,718
<TOTAL-COSTS> 63,518
<OTHER-EXPENSES> 30,091
<LOSS-PROVISION> 1,412
<INTEREST-EXPENSE> (1,797)
<INCOME-PRETAX> 14,118
<INCOME-TAX> 5,436
<INCOME-CONTINUING> 8,682
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,682
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
