For the first quarter of its fiscal year 2008, mid-market enterprise applications vendor QAD Inc. late last week reported that total revenue increased 6% to $56.6 million, compared with $53.4 million in the comparable period a year ago. License revenue, however, came in at $10.2 million, below the company's expectation and nearly flat compared with the same period in fiscal 2007. Meanwhile, higher operating expenses swung the company's income from $1.4 million in the first quarter of 2007 to a loss of $1.9 million.
"The first quarter was a bit rough, although we don't see any fundamental weakness in the market or in our strategy," said Karl Lopker, QAD's chief executive, on a conference call with analysts.
Maintenance and other revenue in the quarter, ended April 30, totaled $31 million, compared with $30.2 million in the first quarter of fiscal 2007. Services revenue contributed $15.4 million in the quarter, up 19% from last year's $12.9 million.
Officials attributed approximately $2.3 million of the quarterly revenue to contributions from the company's acquisitions last year of transportation and trade management vendor Precision Software and enterprise asset management (EAM) provider FBO Systems.
The 6% year-over-year rise in revenue, however, was below company expectations and due primarily to weak license revenue in North America and lower utilization of services outside of North America, Lopker said.
Management changes in QAD's North American sales organization were also partly to blame for lower-than-expected performance in the quarter, said Lopker, who added that the company expects to realize the benefits of these changes beginning in the second quarter.
One of the highlights of the quarter was the signing of QAD's first significant deal to provide a hosted ERP application to U.S.-based automotive manufacturer Dana Corp. Lopker said QAD expects to realize approximately $2 million from the contract, for which it competed with Oracle Corp., over the next several quarters.
"[The deal] reinforces our belief that [on-demand products] will be an important source of revenue in the coming quarters," Lopker said.
QAD believes its strategy of providing on-demand ERP applications tailored to each of the vertical markets the company serves will ultimately be a winning differentiator against competitors, added President and Chairman Pam Lopker.
"New product activity in our existing customer base was up slightly, but not as strong as we would have liked," Karl Lopker said. "We are aware that our sales and services staffs are not as knowledgeable in selling our new products as we would like them to be," he continued, adding that sales training is planned for the new product lines during the second quarter.
QAD also closed a number of other deals for which license revenue was not recognized in the quarter for various reasons, Karl Lopker said. These included licenses sold to Coca-Cola Enterprises, CoorsTek, Ford Motor Co., Fujikura, Hewlett-Packard, Schlumberger, and Unilever.
QAD expects total revenue in the second quarter to be in the range of $60 million to $63 million. For the full year ending January 31, 2008, the company has lowered its original guidance of revenue ranging from $254 million to $266 million; the company now expects the range to be $247 million to $258 million.
In other news, QAD today announced an expansion of its longstanding licensing and distribution agreement with Progress Software, whereby QAD embeds Progress's technology in QAD Enterprise Applications, the ERP provider's core product. The expanded agreement will now include Progress's Sonic ESB (enterprise service bus), Progress Actional for SOA management, the Progress EasyAsk Natural Language, and Progress Query, in addition to the Progress OpenEdge application platform already in use.
QAD also announced today that it has signed a co-marketing agreement with LANSA, a provider of e-business and supply chain automation applications. QAD will offer the LANSA Data Sync Direct product to mid-market customers in a variety of industries that are ramping up efforts to participate in the various supply chain initiatives being driven by many large retailers and distributors.