The supply chain specialist reports a down second quarter, but says its growing embrace of on-demand software offerings will help push the needle on sagging sales.
Supply chain software provider i2 Technologies managed to do something in the second quarter that few of its enterprise software competitors have been able to do lately: The company actually grew software revenue year over year, a feat that helped keep its total revenue from taking a steeper dive.
For the three months ended June 30, sales of i2’s software solutions soared 21% to $15.3 million, a rarity among recent earnings reports from software providers. Even so, sizable drops in its services business — down 23% to $23.6 million — and maintenance sales — 16% off last year’s pace at $18.2 million — brought overall sales down 12% to $57 million, compared with $64.7 million in 2008’s second quarter.
On a conference call with analysts Thursday to announce the results, i2 CFO Mike Berry said the falloff in maintenance revenue was of concern. “Stabilizing maintenance revenue is an area of central focus for us,” he said.
In bottom-line terms, i2 faced a nearly impossible task in matching last year’s net income, which was inflated by an $83 million settlement of i2’s patent infringement lawsuit against SAP. This Q2, net income reached $10.6 million, compared with $86 million 12 months earlier. i2 is pursuing similar legal action against Oracle, which i2 says infringed a number of its patents.
The supply chain technology pioneer has had its share of challenges in recent years, as the enterprise software space around it has consolidated and supply chain processes have become a subset of many ERP offerings, leaving i2 as one of only a few best-of-breed vendors. In 2008, a would-be acquisition by rival JDA Software fell through, leaving i2 to go it alone.
But by all appearances, the company is positioning itself for the long haul, announcing a major initiative to boost its customer base with the help of new on-demand software offerings. CEO Jackson L. Wilson, Jr. served notice of the shift in a March conversation with Managing Automation, and on this week’s call provided more specifics on the SaaS buildout.
i2 currently maintains an on-premise-heavy software portfolio, but that will begin to change, Wilson told analysts. In the second quarter, the company announced Planning on Demand, a SaaS product initially targeted at semiconductor companies but scheduled to be customized for other sectors.
Wilson said i2’s product strategy group is busy deciding which products are best suited to a transition to SaaS. The company has already made some decisions on which technology areas to invest in, but Wilson wouldn’t discuss particulars on the call.
“I also want to stress that we view these SaaS offering as opportunities for us to grow our customer base, adding new companies to the i2 family of customers, not as replacements for existing solutions,” he said.
The drive to on-demand is part of an effort to push the needle on sales, which has been moving in the wrong direction over the past few years, falling from $279.7 million in 2006 to $255.8 million in 2008. Second-quarter results, in particular, have been caught in neutral. Before this most recent dip, i2 had been stuck at $64 million in Q2 revenue for three years running.