| Abstract: | Fiscal third-quarter earnings at the mid-tier ERP vendor decline due to higher R&D and sales and marketing expenses; overall revenues rise, spurred by strong performance in services business, although license revenues come in below plan |
| Keywords: | QAD, GXE, MFGPro, .NET, third quarter, earnings results, mid-market ERP, enterprise resource planning |
Higher expenses and lower-than-expected license revenue conspired to drag down fiscal third-quarter earnings at mid-tier ERP vendor QAD Inc.
For the period ended October 31, the company's net earnings were $900,000, or 3 cents per diluted share, compared with $2.7 million, or 8 cents per diluted share, in the like quarter last year. This year's third quarter included pre-tax stock compensation expenses of $1.3 million, while the comparable period last year benefited from a $500,000 insurance settlement, the company said.
Moreover, the recently completed quarter was marked by higher development as well as sales and marketing expenses, QAD's CFO Daniel Lender told financial analysts during a conference call yesterday. Overall operating costs increased to $32.9 million from $27.5 million in the like period last year, although they were down sequentially from the $34.2 million registered in the previous quarter.
The year-over-year spending increase was spawned by a $4.5 million rise in R&D expenses and $1.7 million hike in sales and marketing expenses tied in part to personnel increases, Lender said.
In the quarter, QAD's top line increased 11% to $57.3 million from the like period last year, propelled by strong services revenues and a respectable increase in license and maintenance revenue compared with last year's "weak" third quarter, CEO Karl Lopker told analysts.
Services revenue, in fact, jumped 28% to $15.4 million in the period. Meanwhile, license revenue increased 9% to $11 million, while maintenance and related revenue increased 6% to $30.9 million.
Lopker attributed the services revenue increase to an uptick in demand for business consulting focused on process improvements and key performance metrics. Customers were attracted to QAD's tiered pricing, which offers the ability to mix and match onshore and offshore resources, he explained.
While expressing satisfaction with the results in what is traditionally a tough quarter for QAD, Lopker said license revenues were still "below plan." He pointed to a shaky ramp-up of the company's recently released Microsoft .NET graphical user interface (GUI) for its GXE enterprise applications suite as one reason for the shortfall.
QAD President Pam Lopker said the company's field force struggled to keep pace with pent-up customer demand for demos of the new interface, which undercut its sales effort. Nevertheless, the new interface is helping the company gain converts to the new SOA-enabled software, she maintained.
"It's really helping in our win rate with new customers," she noted, adding that the GUI is propelling QAD up the short list in competitive bids and is contributing to the company's overall increase in it sales funnel.
That sales funnel is "up over 30% from last year," Karl Lopker said. "We expect to have this turn into revenue in the fourth quarter and position us well going into the first quarter next year," he noted.
Recent acquisitions of enterprise asset management software developer FBO Systems and transportation management software purveyor Precision Software are helping to broaden the company's potential market, Lopker noted. Both acquired companies are expected to turn in double digit-growth over the next few quarters, fueled in part by products that were built to work out of the box with QAD's MFGPro ERP software and the retention of both companies' management teams, which has smoothed the transition to new ownership, he noted.
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