JDA Software App License Sales Stall In Q2

Published: August 15, 2011

by Timothy Prickett Morgan

At the end of July, before the debt crisis and renewed worries about the economy had taken hold last week, retail and supply chain application software vendor JDA Software reported its second quarter financial results and was pretty optimistic about the rest of the year despite disappointing sales in Q2. It is important to remember that correlation is not causation, but the timing with the swoon on Wall Street in the wake of U.S. government credit getting a downgrade by Standard and Poors is spooky.

And not necessarily meaningful except in hindsight several quarters from now if business doesn't pan out as JDA's top brass expect for the remainder of 2011.

In the quarter ended in June, software license sales declined 16.3 percent, to $26.9 million, and subscription and other recurring revenues plummeted 33.7 percent, to $3.9 million. Maintenance revenues rose by 9.1 percent to $66.1 million. Total product sales at JDA were therefore off by 1.7 percent, to $66.1 million. Consulting services were up 6.9 percent, to just over $59 million, and reimbursed expenses (not sure why this is a revenue stream) was up by 43 percent to $6.5 million. All told, then, JDA's overall revenues were up 2.5 percent, to $162.4 million. Despite the revenue shortfall, net income was considerably better, rising 28.6 percent, to $10.1 million.

In a conference call with Wall Street analysts, Hamish Brewer, chief executive officer at JDA, said that license sales in the second quarter were expected to go down because of a tough compare to last year's second quarter. JDA also did not expect to see anything close to the 27 percent license sale growth it had in the first quarter of this year either. A few important deals in North America did not come through as expected before June ran out of business days, and after lots of analysis and review, JDA's top brass came to the conclusion that it could not attribute this to a softening in the market or some other macroeconomic issue. "I think it would be premature to declare that we are facing an industry trend," Brewer declared on the call.

More perplexing for Brewer and his team was the fact that JDA did close a bunch of big deals in Q2 and that the sales pipeline for Q3 "appears to be uncharacteristically strong." JDA close 67 new software license deals in the second quarter, compared to 54 in the year-ago period, and had nine transactions worth more than $1 million, compared to only six a year ago. Sales in the Asia/Pacific region fell by half in the first six months of the year, thanks to the earthquake and tsunami in Japan, and while revenue has not yet come back, Brewer said that the sales pipeline is starting to rebuild. JDA's sales in Europe for the first half of 2011 were almost at the same level for all of 2010 thus far, so Brewer said the company was pretty satisfied across the Pond.

JDA exited the first half of the year with $293.2 million in cash and equivalents in the bank, more than double what it had a year ago and including $35 million from Oracle to settle litigation over software patents.

JDA has been projecting for revenues in 2011 to be in the range of $650 million to $690 million, and non-GAAP earnings per share to range from $2 to $2.20. In the conference call, Peter Hathaway, JDA's chief financial officer, said that this would be driven by 17 percent growth in license sales and overall revenue growth of 9 percent compared to 2010 at the midpoint of the range; non-GAAP earnings per share should climb by 8 percent at the midpoint.

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