Supply chain software provider i2 Technologies today reported disappointing results in both its software and maintenance revenues and new software bookings for the first quarter ended March 31, 2007, but saw growth in its services business.
i2 also announced that its board of directors has initiated a search to replace President and CEO Michael McGrath, who is expected to retire from the company when his contract expires at the end of 2007.
"We got off to a little slower start than we wanted," McGrath said of i2's first-quarter results on a conference call with investors. McGrath said the company currently has a strong pipeline of deals expected to close beginning in the second quarter. "As a company, we're still not to the point where we can achieve steady quarterly license bookings," McGrath said, pointing to a traditionally weak first quarter for the company.
Total revenue for the quarter was $65.6 million, compared with $64.0 million in the first quarter of 2006. Total first-quarter revenue included contract revenue of $2.5 million, well above the $33,000 reported for the first quarter of 2006. Excluding the impact of contract revenue, operating revenue was $63.1 million, down 1% from $64.0 million in the first quarter of 2006.
i2's first-quarter revenue from software sales, including core license revenue and recurring license revenue, was $13.4 million, down 21% from $16.9 million a year earlier. Maintenance revenue in the quarter fell 9% to $21.0 million, from $23.2 million in the prior year's first quarter.
Services revenue, meanwhile, at $28.7 million, increased 20% from $23.2 million in the prior-year period.
In addition, officials said, cash flow and earnings per share both were higher than anticipated in the quarter. Diluted earnings per share (GAAP) were $0.13, compared with $0.04 in the prior year period. However, non-GAAP diluting earnings (excluding stock option expense and contract revenue) were $0.16, versus $0.21 per diluted share in the first quarter of 2006.
Regarding his pending retirement at the end of 2007, McGrath said i2 chose to announce the search for his replacement prior to its user conference, i2 Planet, to be held later this week in Orlando, FL. "This is an important transition, but not something that anyone should overreact to," McGrath said. McGrath joined i2 in 2005 and has been instrumental in reducing expenses in order to stabilize the company financially and in entering i2's products into new markets.
"It is best to have a CEO who can lead us through the entirety of [the next five years] ... of the company's new generation," McGrath said. "I couldn't make that commitment," added McGrath, 57.
He added that he is looking forward to spending more time with his family, but didn't rule out the possibility of pursuing "other opportunities that may come along." In answer to a question from analysts, McGrath said he would consider a possible appointment to chairman of i2. i2's current chairman is co-founder Sanjiv Sidhu.
McGrath will remain until a new CEO is selected and through the transition phase. McGrath will participate in the CEO selection process. His decision to retire "in no way reflects my confidence in i2," McGrath said, "and was a difficult and painful decision for me to reach."
In another announcement today, i2 said it has acquired Blue Agave Software Inc., a privately owned provider of store-level demand planning software for consumer goods suppliers. Blue Agave's product will be relaunched as i2 POS (point-of-sale) Demand Sensing, and will be integrated with i2's other software offerings, McGrath said. i2 did not reveal how much it paid for Blue Agave.
McGrath added that i2 will launch three new products for the retail space and two new products for manufacturing at i2 Planet. In addition, he described a new collection of business processes and technology workflows, called the Business Content Library, from which users can pick and choose those that best fit their needs.
Addressing last year's patent infringement lawsuit filed against SAP, McGrath said i2 expects the trial to begin later this year and to reach a jury about a year from now.
i2 rivals JDA Software and Manhattan Associates also announced their quarterly financials last week, both reporting strong results for the period ended March 31.
JDA's first-quarter revenue was $90.7 million, including $17.0 million in software revenue, with a big jump from $47.9 million total revenue and $7.1 million in software revenue in the prior-year period. The company reported that its acquisition of Manugistics, which closed in July 2006, contributed $36.5 million in revenue during the first quarter of 2007, including $4.2 million in software revenue.
JDA also reported adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $19.6 million for the first quarter, compared with $4.0 million in the like period of 2006. The company signed 93 new software deals during first quarter 2007, representing 35 more than in the fourth quarter of 2006, and 34 more than in the like period of 2006. JDA also reported sales growth in each of its worldwide regions, including a jump to $2.0 million in Asia Pacific from $131,000 a year earlier.
Manhattan Associates, meanwhile, reported adjusted (non-GAAP) diluted earnings per share of $0.23, a 44% increase over the like period in 2006, as well as a consolidated revenue increase of 25% to $78.2 million, a company record. The company's results included $13.8 million in license revenue, a 24% increase, and $54.8 million in services revenue, up 21% from first quarter 2006, also a record, according to the company.
"Because of a solid first quarter, confidence in our outlook for the balance of 2007, a lower income tax rate, and the impact of the shares we purchased in the first quarter, we are raising our full-year [earnings-per-share] guidance by $0.05 per share," Manhattan Associates President and CEO Pete Sinisgalli said in a prepared statement.