Addition of i2 Drives JDA Software’s Growth in Q2

August 9, 2010 Timothy Prickett Morgan

If it were not for a $246 million settlement in a Texas lawsuit relating to i2 Technologies prior to its acquisition by JDA Software, the retailing and supply software specialist would probably be popping champagne corks all over the boardroom in Scottsdale, Arizona. OK, maybe getting a few six packs of good beer, since sales were up but profits were not because of rising development costs and restructurings relating to the i2 acquisition.

In the second quarter, JDA’s overall revenues were up 59.2 percent, to $158.4 million, but $9.9 million in amortization of intangibles and $4.5 million in restructuring charges drove down net income by 12 percent to $7.9 million in the quarter. Software license sales rose by 20.9 percent in the quarter, to $32.2 million, with subscriptions and other recurring revenue coming to $5.8 million, up by nearly a factor of six. Maintenance services (meaning support contracts for JDA’s various software packages) had a 36.6 percent hike in Q2, to $60.6 million, bringing overall product revenues to $90.6 million, up 37 percent. Consulting services more than doubled to $55.3 million; other revenue nearly doubled to $4.6 million.

JDA ended the quarter with $146.2 million in cash and equivalents, and as we go to press, the company has a market capitalization of $994 million, about where it was before that Texas jury in June awarded Dillard’s department stores a huge $246 million judgment in a long-running lawsuit against i2.

In a conference call with Wall Street analysts, Pete Hathaway, JDA’s chief financial officer, said that in the second quarter, about 43 percent of software and subscription sales came from the i2 products; i2 maintenance renewals are lagging a bit but not outside expected ranges. Hathaway said that JDA closed 54 software deals in Q2 (down quite a bit from the 68 it did a year ago, when the economic meltdown was still hot); six deals were for transactions of $1 million or more. Average selling prices have been above $600,000 for seven quarters; Q2’s $608,000 ASP dipped a bit from Q1, when it was $618,000. In general, Hathaway said JDA expected to close more large transactions as time goes on.

Hathaway said that JDA expected to be able to chop about $20 million of costs out of the combined JDA and i2 companies, and that it removed $4 million in costs in the first quarter and another $5 million in the second quarter, a little less than halfway to the goal. JDA is ramping up its programming and services from its Hyderabad and Bangalore operations in India.

As for that Texas verdict, Hamish Brewer, JDA’s president and chief executive officer, said that JDA was flabbergasted by the excessive nature of the damages awarded by the jury in the Dillard’s case. “We believe that the shocking verdict issued by the jurors against us was ill founded and excessive,” Brewer said on the call. Brewer said that there was a hearing on July 15 where the judge is considering arguments for both sides of the case to convert the jury’s verdict into a judgment and asking both parties to submit additional information to make their cases. “We will keep pursuing all avenues available to us to have this verdict overturned or substantially reduced to something that we believe is reasonable,” Brewer said, adding that this could take a lot of time if there has to be an appeal and that all of this will entail paying lawyers big bags of money.

As for guidance for the rest of the year, Brewer said that the third quarter would be software than the second, followed by a stronger fourth quarter.

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