NetManage Books Loss in Second Quarter, CFO Resigns

After reporting weak first quarter financial results, Zvi Alon, the chairman, president, and chief executive officer of NetManage laid a portion of the blame on customers delaying the purchase of software. And now, NetManage has reported even worse second quarter results.

Here’s what Alon had to say three months ago: “While the first quarter is always challenging for our industry, this was a disappointing quarter for NetManage with a larger than anticipated number of customers delaying the purchase of software. Given that several deals that slipped from the first quarter of 2006 have already closed, we do not believe this is indicative of customer behavior for the year. We are monitoring customer buying patterns closely and are focused on accelerating the growth of our sales pipeline.”

So what does he have to say after the NetManage sales efforts only managed nine new customers in the second quarter?

“Sales were slower than expected in North America primarily due to the large number of new sales representatives who are taking longer than anticipated to get to full productivity,” Alon said. “We do not believe this is a market issue and are optimistic of the growth in the application integration markets where we are competing. While we are disappointed that we did not see the improvement in sales in the second quarter we anticipated; we believe NetManage is well positioned for growth and a return to profitability during the second half of the year.”

The figures shake out like this. Revenues for the second quarter of 2006 were $9 million, which was an increase compared to net revenues of $8.5 million for the first quarter of 2006. That’s not as good as the $10.7 million for the second quarter of 2005. It should also be noted that although net revenues increased $500,000 when comparing Q2 to Q1, the first quarter showed a 49 percent drop in license fee sales, a 15 percent decline in services sales, and a 30 percent fall off in total sales.

NetManage’s net loss for the second quarter 2006 was $899,000 compared to a net income in the second quarter of 2005 of $695,000. The first six months of 2006 fall far short of the same period in 2005. Net revenues were $17.5 million compared to $22.8 million. The net loss was $1.7 million compared to a net income of $1.5 million. The five percent increase in revenues from Q2 compared to Q1 this year is attributed to higher license fees and sales gains in Europe while the North American sales team slumped.

Alon must also be red-faced regarding the announcement Thursday that chief financial officer Michael Peckham resigned to become chief financial officer at Instill, a supply chain software company that specializes in the food service industry. Until a replacement is named, all corporate finance functions will report directly to Alon.

On the product side, NetManage added support for the “separation of duties” security model in the OnWeb for iSeries software. This new functionality provides separation of administration, development, and deployment. The company expects this to be particularly attractive to its government and finance customers. It also recently announced RUMBA FTP 4.2, a graphical FTP client that includes support for additional IBM server modes, scripting capabilities, and an enhanced user interface.

There was also a newly formed strategic partnership with Cape Clear Software aimed at helping enterprises use existing applications on legacy and mainframe systems within broader SOA strategies.