JDA Software Group, Inc. (JDAS) reported its first quarter earnings on April 20th. Particularly notable on the earnings call was management’s renewed confidence in the company’s sales pipeline. I am keeping my 12-month price target at $18.00, but I have more confidence in this figure now, and believe there is more upside than downside.
This was a much better call than the Q4 call. On the Q4 call, given the lack of visibility into 2009, management said they would no longer provide annual guidance – just guidance on the coming quarter.
Management sounded much more confident this time around, stating that they have now “rebuilt” their “large deal pipeline.” In a bit of chest thumping, JDA’s CEO twice made a point of bashing the competition, going so far as to say that they believe the quarter was a “disaster” for a number of their competitors.
Financial Summary and Projections
The forecast below assumes revenue near the low end of management’s guidance in Q2, and modest growth in the second half. The resulting adjusted EBITDA for Q2 is also at the low end of the guided range. Forecast cash flow from operations is a rough estimate, factoring in the seasonality of deferred revenue (40% of maintenance fees are generally collected in Q1, contributing to the high cash flow from operations for the quarter). Given management’s confidence in the business, these projections may be overly conservative. For a valuation analysis and more detailed forecast, please see the full article here.
click to enlarge
The primary opportunities for growth and value creation beyond the forecast figures appear to be:
- Large deal wins: JDA’s solutions for retailers and CPG companies continue to be recognized as best-in-class. JDA should win its share of new deals, so there is upside if industry demand picks up more than expected.
- Recovery of sales momentum in Pacific Asia and EMEA: JDA has been “retooling” regional management for some time and last year was hopeful that these actions would pay off in 2009. Q1 was still weak in these regions, so it seems there is more work to be done.
- Increased sales to manufacturing companies: This was supposed to be one of the benefits of the Manugistics acquisition, but JDA has not yet fully leveraged the acquired products and brands.
- New Managed Services offering: This was barely mentioned on the call, but in its new investor presentation, dated as of today, the company states that it believes that its clients spend over $2 billion per year managing JDA solutions. JDA now wants to capture a percentage of this services business, leveraging its new CoE infrastructure. With targeted operating margins of 30%-40%, this could have a significant impact on JDA’s business in the coming years.
Disclosure: Long JDAS