SEC Investigation Weighs On JDA Software
March 5, 2012 Alex Woodie
An investigation into the revenue-recognition accounting practices of JDA Software caused the software company to miss the deadline for the filing of its annual report last week. JDA received a note of non-compliance from NASDAQ, which gave the software company 60 days to file the report.
JDA disclosed that it was the subject of an investigation by the Securities and Exchange Commission (SEC) in a press release about its fiscal 2011 and fourth quarter financial results, which it posted in on January 31. The company says the SEC’s corporation finance and enforcement divisions are looking into JDA’s revenue recognition and other accounting and financial reporting matters, and have subpoenaed documents for 2008, 2009, and 2010. JDA says it’s actively cooperating with the SEC.
The SEC investigation appears to be focused on the timing of revenue recognition by JDA rather than the existence of the revenue, JDA chief executive Hamish Brewer said during a conference call following the financial results announcement. “We will of course work very transparently with the SEC to answer their questions and provide the documents that they’ve requested as quickly as possible,” he said.
Brewer said JDA is working with its legal counsel, auditor, and “Big Four” accounting firms to gather the documents requested by the SEC, noting that none of the auditors had raised any concerns about JDA’s accounting practice. Company officials said the investigation doesn’t involve any particular JDA branch, but considers the revenue under the entire JDA umbrella. Prior to its acquisition by JDA, i2 had been the subject of multiple SEC investigations regarding revenue recognition.
The SEC investigation directly led JDA to miss the February 29 deadline for filing its 10-K annual report. The company filed a notice of late filing with the SEC, which gave it an additional 15 days to file it, but it’s very unlikely that JDA will file the report by then. The late filing also puts JDA in violation of NASDAQ rules requiring prompt filing of financial reports, which led to the stock market’s warning letter to JDA last week. JDA was given a 60-day grace period to submit a plan to regain compliance before further action is taken. If NASDAQ accepts JDA’s plan, the grace period could be extended to 180 days.
JDA posted decent financial results for fiscal year 2011 and the fourth quarter of 2011 (they’re decent only if one looks beyond the $54-million hit the company took in December due to the settlement of the lawsuit with department store chain Dillard’s). But of course, the results now must be taken with a grain of salt considering the SEC investigation.
According to JDA, the company posted fourth quarter revenue of $174.2 million, a 3 percent increase from the same period of 2010. The company recorded a total loss of $1.4 million, compared to net income of $5.8 million a year earlier. Without the one-time litigation costs, it would have been a very profitable quarter for JDA. For the year, revenue increased 9 percent to $671.8 million, while net income skyrocketed to $71.0 million from $17.7 million a year earlier.
News of the investigation knocked JDA’s stock value down about 15 percent, from about $29.50 to about $24, although since then the stock has recovered about 9 percent of that loss and is trading around $27 as The Four Hundred goes to press on Friday. The stock is far from its 52-week high of $35 per share reached last May. Reports of the investigation also spurred a flood of investigations into JDA by law firms, as usually happens.