| Abstract: | The enterprise software vendor's earlier acquisitions kick in with solid sales contributions, though on-demand business lags. |
Enterprise software provider QAD Inc. exceeded its revenue guidance for the third quarter ended Oct. 31, 2007, recording a solid 16% increase to $66.6 million, the company's largest third-quarter intake ever.
The revenue total, up from $57.3 million a year ago, included orders from 19 customers representing more than $500,000 each. Of those, four orders exceeded $1 million and one order exceeded $2 million. The license orders came in from global manufacturers across the company's six vertical markets, including Akebono Brake Industry, Aspect Medical Systems, Hormel Foods, and Johnson Controls.
At the close of the second quarter, the company had given revenue guidance for the third quarter of $60 million to $64 million, with earnings per share in the range of $.00 to $.05.
In the third quarter, license revenue rose 28% to $14.1 million, from $11 million in the year-earlier quarter. Maintenance and other fees inched up 4% to $32.3 million, from nearly $30.9 million. And services fees rose 31% to $20.2 million from $15.4 million.
Net income was $1.5 million, or $.05 per share, up from $947,000, or $.03 per share, in the prior year's third quarter. Operating expenses of $35.3 million were up from $32.9 million in the 2007 third quarter, due to increased sales personnel and training costs, the company said.
The third-quarter glad tidings continued the momentum that began in the second quarter, ended July 31, when QAD recorded revenue of $64.2 million and net income of $500,000, reversing a first-quarter loss.
On a conference call with analysts late yesterday, QAD Chief Executive Officer Karl Lopker, stated, "Our efforts to increase the breadth of our product line and our increased sales training have started to show results." He also attributed the company's strong showing to acquired products, which are sold as add-on modules to QAD's technology. Sales of add-on modules were up 37% from last year, he said. Lopker pointed to the recent release of QAD Enterprise Applications, QAD 2007.1, the company's core product line, and "improved execution" as contributing to the revenue increases.
QAD purchased Precision Software, a vendor of transportation management software, in September 2006, and enterprise asset management (EAM) specialist FBO Systems in November 2006. Those acquisitions contributed $3.4 million to third-quarter total revenue and $9.2 million to the nine-month total of $187.4 million, CFO Daniel Lender told analysts.
Lopker noted that QAD's revenue from services has grown as fast as the license portion of the business. "We are benefiting from customers' desire to get more of their consulting from their product vendors. Services are becoming a more important part of most engagements," Lopker said. He acknowledged, "Our challenge will be to add services capacity to ensure that our new products are implemented quickly and start providing value as soon as possible."
QAD has been transitioning to an on-demand model for software delivery, and the executives noted that on-demand played only a minimal role in the company's third-quarter performance. Lender pegged on-demand's contribution to license revenue at "below the 5% mark. It's hard to predict how quickly it will ramp up," he said.
Pam Lopker, QAD's president, cited a Gartner study that placed on-demand ERP at the beginning of a five-year cycle. "We agree it will be a few years before it's a mainstream environment," she said. QAD landed two on-demand supply chain deals in the just-ended quarter. The executives said they're seeing interest from start-up companies and acquisitions, where "people have made a decision that 'I don't want to invest in IT or ERP. I'm looking only at on-demand opportunities,' " Pam Lopker said.
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