Raghavan Rajaji has been on something of a roller coaster ride since arriving at supply chain management-software provider Manugistics early last year.

In early 1999, the Rockville, Md.-based company had just survived a near death experience. In the fiscal year ended February 1999, losses skyrocketed to $96 million from $13 million the previous year. Sales dropped to $177 million in fiscal 1999 from $180 million in 1998, and continued to drop in 2000 all the way to $152 million.

“They had a lot of internal execution problems with their sales force and product development,” says Mark Verbeck, a senior research analyst with Epoch Partners.

During 1998 and 1999, much larger rivals like SAP, Oracle, and PeopleSoft were expanding beyond their base in the enterprise resource planning market and encroaching upon Manugistics’s turf in supply chain management. Things had gotten so bleak for the firm, that SAP, Oracle, and IBM were all rumored to be interested in acquiring it a bargain basement price.

But after no acceptable offer materialized, the company’s board decided to go it alone and replaced CEO William Gibson with Greg Owens, who then recruited Rajaji in January 2000.

Rajaji, who had been CFO of BancTec Inc., a Dallas-based maker of check processing equipment, helped steer that firm through a leveraged buyout funded by the New York based investment firm, Welsh, Carson, Anderson & Stowe.

Prior to Rajaji’s arrival, Owens had started a cost-cutting program that slashed operating expenses 40 percent to $163 million in 2000 from $273 million in 1999. Sales and marketing and product development expenses declined 41 percent, and general and administrative costs went down by 20 percent.

The company’s net loss was reduced from $96 million in 1999 to $8.9 million in 2000.

Manugistics was already on an austerity program when Rajaji arrived, taking a restructuring charge of $33.1 million for fiscal 1999, and cutting its workforce by 30 percent. But Rajaji realized that there was more work left to do.

To a certain extent, Rajaji had been through something like this before. Prior to joining BancTec in 1994, he had spent 13 years at Occidental Chemical, a subsidiary of Occidental Petroleum. While there, he had experienced the sharply cyclical nature of the chemical industry.

“I had gone through all kinds of office and plant shutdowns and consolidations,” he says. “It was a matter of necessity in the chemical industry.”

But the tech sector was supposed to be immune to the business cycle. In fact, at the end of 1999 and in early 2000, companies were still being told to spend their way out of red ink by building market share through “first-mover advantage.” But Manugistics’s experience has proven the lie to that cliché.

“The critical element was to make sure that the costs were under control and that we didn’t overspend even though analysts were telling us that costs were not important, and that we should grow at any cost,” says Rajaji. “Fortunately we did not jump on that.”

He says, “We really had to sit down and prioritize the areas where we would increase resources.”

By the middle of last year, the signs of the turnaround had become evident. Manugistics’s bottom line turned modestly positive, with the company ending an unwelcome string of nine quarters of losses and earning an even $1 million in the August second fiscal quarter and $3.4 million in the November third quarter.

The turnaround was spurred by a rebounding demand for the company’s supply chain management products, which saw revenue surge from $50 million in the first fiscal quarter, to $58 million in the second, $70 million in the third, and $89 million in the fourth.

But the company had been so aggressive in slashing costs during the prior fiscal year that it found itself in something of a bind when its fortunes recovered. It simply didn’t have enough salespeople or marketing staff to satisfy the resurgent demand.

“As we started growing the company, we had to build our market image pretty fast,” he says. “We very consciously accelerated our marketing expenses substantially in fiscal 2001. There was a feeling that the company had great products, but what we really needed to change was how we went to the market.”

The company had to increase its sales force by 67 percent, and that led to a 90 percent jump in marketing costs to $115 million. Product development costs rose to $40 million from $29 million, and general and administrative costs rose to $22.9 million from $15.8 million.

The rapid increase in spending led to a loss in the fiscal fourth quarter of $16.6 million and a loss of $28.1 million for the year as a whole.

Despite this setback, Epoch’s Verbeck is upbeat about the company’s prospects.

“I would rate their management team very highly,” says Verbeck. “It is very difficult for a company that stumbles like they did to come back, and that is a great tribute to the team they put together there.”

Last October, the company also rebuilt the cash on its balance sheet, raising $250 million in convertible notes. At the end of the fiscal year, on Feb. 28, the company had $300 million in cash, up from $52 million in the prior year.

“I had to work closely with investment bankers to make sure that we went out in the marketplace at the right time and raised financing at an attractive rate,” says Rajaji. “We needed enough cash on the books to do acquisitions and provide for working capital and R&D.”

Rajaji is confident about the future and is holding to his projections for fiscal 2002, when he expects revenue to increase by 50 percent.

“As we said in our conference call, we’re keeping to our targets,” he says.

But after everything this company has been through, is such optimism realistic?

Epoch’s Verbeck, for one, doesn’t think it’s misplaced. Rajaji “has done a good job of controlling expenses,” he says. With a tight grip on costs, and a growing top line, the company’s recovery may finally be complete.