JDA Software Group Inc.'s recently concluded acquisition of supply chain management software pioneer Manugistics came too late to salvage JDA's second-quarter financial results, released yesterday.
The Scottsdale, AZ-based vendor of demand management applications for manufacturers and retailers reported $51.8 million in revenues for the quarter ended June 30, down 5.6% from the like period last year. The revenue decline was fueled by a 32% drop in software license revenue and flat maintenance revenues, the company said.
JDA reported $10.3 million in software license revenue for the quarter, down from $15.3 million in the year-earlier period. Maintenance revenue, at $21.7 million, was up 1% compared to the same period a year ago.
The revenue slide, coupled with acquisition-related expenses, led to a 70% decline in net income. The company reported net earnings of $1.1 million in the second quarter, down from $3.6 million in the year-earlier period.
Earlier this month, JDA CEO Hamish Brewer issued preliminary second-quarter numbers, warning investors of the lower-than-expected financial results. At the same time, JDA lowered financial projections for the remainder of 2006. He called the results disappointing and blamed the company's inability to close several deals before the end of the quarter.
In a conference call with analysts yesterday, Brewer said the company's difficulty closing deals hasn't abated. "There is a fair amount of uncertainty in the market," he said. "We are seeing deals continuing to get delayed or deferred. So that hasn't changed."
JDA CFO Kristen Magnuson blamed the company's flat maintenance revenues on a combination of customer attrition and the impact from software license revenue declines.
Despite the poor operating results, JDA reported better cash flow in the second quarter, mainly through improved revenue collections. Days sales outstanding dropped from 81 in the prior quarter to 64 in the most recent quarter, allowing JDA to end the quarter with $130.8 million in cash and marketable securities compared to $111.5 million at the end of 2005.
JDA's second-quarter revenue slide represented a continuation of a recent trend for the company. Through the first half of 2006, JDA has seen total revenues decline by 5.3% and net earnings fall by 63.6%. In the fourth quarter of 2005, JDA reported a $204,000 loss on a 3.8% decline in revenues compared to the year-earlier figure.
Brewer, however, predicted that JDA's performance will improve as a result of the company's $213 million acquisition of Manugistics, which was completed on July 6. (Manugistics' financial results were not included in JDA's second-quarter numbers.)
Brewer said JDA already has begun to realize cost improvements as a result of the consolidation of JDA and Manugistics operations. In July, he said, the company eliminated 70 redundant jobs and expects to eliminate another 100. And JDA has begun to consolidate office space.
"We are on track to deliver most benefits by the end of this year," he noted.
The addition of Manugistics will also increase the percentage of revenues derived from maintenance services, which will make JDA's financial results more predictable, Brewer said.
JDA also has begun to realize sales and marketing synergies by making sales calls with joint JDA/Manugistics sales teams. As a result of those shared activities and JDA's larger post-merger scale, the company is now being considered for larger deals, Brewer said.
"We are being positioned at a different level in the marketplace and are gaining access to opportunities that ... either of us on a stand-alone basis [was not] going to get access to," Brewer pointed out.
JDA's involvement in larger deals, he acknowledged, means the company will now be competing more directly against enterprise application giants such as SAP AG and Oracle Corp.
"We don't know what the full impact will be of getting into more serious competition" with those companies, Brewer cautioned.
Separately, Brewer said JDA will restructure its sales and marketing organizations along vertical industry lines. The company will organize itself to address three major markets: retail, manufacturing/distribution, and service industries. Previously, JDA had focused on two segments, retail and all others.