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Volume 19, Number 39 -- November 1, 2010

JDA Boosts Earnings on Rocketing Sales in Q3

Published: November 1, 2010

by Timothy Prickett Morgan

Supply chain and retail software specialist JDA Software has turned in a very good third quarter, with revenues up 65 percent, to $158.4 million, and net income rising 32 percent, to $8.3 million.

In the quarter ended September 30, software license sales fell by a half point to $16.3 million, but subscription and other recurring revenues rose by a factor of 6.4 to $5.8 million. Maintenance service revenues for JDA rose by 42.6 percent, to $64.2 million, and consulting services sales in the quarter more than doubled to $65.9 million. Reimbursed expenses were more than double as well, hitting $6.3 million. The cost of providing those goods and services nearly doubled, however, which is why profits grew at half the pace of revenues. Companies tend to like to have profits growing faster than sales, but this is not always possible. The good news for JDA is that its cash pile has nearly doubled in nine months, to $172.4 million.

The growth, of course, comes predominantly from JDA's acquisition of supply chain software specialist i2 Technologies. Peter Hathaway, JDA's chief financial officer, said that the integration with i2 was going so well that the company believed it could end the year on the high side of its initial expectations in the wake of the acquisition. Hathaway said that JDA would have somewhere between $125 million and $135 million in software sales for all of 2010 based on the current pipeline, and overall sales will be somewhere between $590 million and $625 million. JDA is in the middle of a lawsuit with Oracle over patents and with an i2 customer, Dillard's, that forced it to spend an extra $10 million this year on lawyers, but even with this, Hathaway said that the company believes it can hit the low end of its non-GAAP earnings for the year, which was predicted to be somewhere between $1.85 and $2 back at the beginning of the year.

JDA did fewer--and lighter--deals in the third quarter than it did a year ago, which it had already warned Wall Street would happen. The company had 40 new software deals in Q3, down from 57 a year ago, and the average selling price of a transaction fell to $573,000 from $608,000 in the second quarter. (ASPs for the year-ago quarter were not given, and not necessarily relevant since JDA didn't yet own i2.) JDA will be spending close to $4 million per quarter on lawyers as it fights to overturn the $237 million ruling against it by a verdict in a jury trial in June and reaffirmed by the judge handling the case in September. JDA has posted a $25 million bond against the ruling so it can appeal without having to shell out the whole $237 million.

Hamish Brewer, JDA's president and chief executive officer, said that maintenance retention rates for the combined companies were running at 96 percent, and that i2, before the deal went down, was running at 83 percent. That change in retention rates is driving up profits, which was, of course, part of the plan.

JDA did not give guidance for 2011, but will do so when it reports its fourth quarter results in January next year.


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