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JDA Software Group, Inc (NASDAQ:JDAS)

Q3 2010 Earnings Call

October 26, 2010; 04:30 pm ET

Executives

Hamish Brewer – Chief Executive Office

Pete Hathaway - Chief Financial Officer

Mike Bennett - Group Vice President of Treasury & Investor Relations

Analysts

David Rosen - S.A.C Capital

Richard Williams - Cross Research

Jeffrey Van Rhee - Craig-Hallum

Patrick Walravens - JMP Securities

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to JDA Software’s third quarter 2010 earnings conference call. During today’s presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions)

I’d now like to turn the conference over to our host and Chief Executive of JDA Software, Mr. Hamish Brewer. Please go ahead, sir.

Hamish Brewer

Thanks, Jeremy. Good afternoon and welcome to the JDA Software earnings call for the third quarter 2010. Record revenues and strong earnings were the highlights of this quarter and I believe that these results are indicative of a broad range of positive indicators for the company.

On today’s call, we’ll walk you through these indicators and discuss the consequences for both full year revenues and earnings. With me on the call today is Pete Hathaway, our Chief Financial Officer and Mike Bennett our Group Vice President of Treasury and Investor Relations.

Pete will now walk you through the financial results, and then I will discuss the underlying trends in our business. Pete?

Peter Hathaway

Thank you, Hamish. Before I begin discussing the numbers, I’d like to remind you that our comments today will contain certain forward-looking statements that often involve risks, uncertainties and assumption. All statements other than statements of historical facts are statements that could be deemed to be forward-looking statements. These risks are described from time-to-time in our SEC reports including but not limited to, our Annual Report on Form 10-K for the year ended December 31, 2009.

And our presentation also includes certain non-GAAP measures, which JDA uses internally in budgeting and performance monitoring activity to gauge our business performance. We believe these measures provide useful information to our investors in evaluating JDA’s ongoing business results. We prepared a reconciliation of these measures to the most directly comparable GAAP measures in our press release, which will be posted on our website at jda.com.

In addition, we have also posted on our website a slide deck with supplemental information to accompany our discussion of the results for the quarter. As Hamish mentioned in his opening remarks, Q3 was a period that has provided positive indicators for the business and validation of the progress we are making on the successful integration of i2. The integration of the business is taking place on schedule as evidenced by our strong i2 software sales, our solid Q4 pipeline, our robust consulting revenues and our significant maintenance revenue foundation with a higher than expected retention rate of almost 96%.

Additionally, we have achieved $16 million or 80% of our total synergy goal through the first three quarters of the year. These results are contributing to the strong operational performance of JDA. We now have enough visibility into year-to-date total revenue and software sales and then into the software pipeline for Q4 to believe that our original expectations for the year should be achieved at the higher end of the software revenue range of $125 million to $135 million. And at the total revenue range of $590 million to $625 million.

Looking at adjusted EBITDA, even with the $10 million of incremental litigation cost we expect to incur this year, we believe, we can achieve the lower end of our 2010 adjusted EBITDA outlook range of $160 million to $170 million, and for adjusted non-GAAP EPS, we believe we will be within the original outlook range of $1.85 to $2.00.

As for our operating cash flow, we expect 2010 to exceed $100 million after adjusting for specific one-time items related to the i2 acquisition. We think this is more reflective of ongoing cash flow from operations than what we will report for GAAP purposes in 2010.

Notably, these results are expected to be achieved despite the unanticipated legal costs in 2010 relating to the Dillard’s case and the Oracle patent infringement litigation, which has created a headwind in the achievement of our earnings expectations.

Turning to specific commentary on the results for the third quarter 2010, adjusted EBITDA increased 65% to $39.7 million from $24.1 million in Q3 2009. Adjusted EBITDA margin was comparable to the 25% achieved in the prior year despite incurring approximately $3.3 million in legal costs associated with the inherited i2 legal matters, which alone amounts to about 210 basis points.

Additionally, we are able to maintain our EBITDA margin despite a shift in revenue mix in the quarter that saw a lower percentage of high margin products revenue equal to 54% of total revenues as compared to 65% in the prior year’s period. On a sequential basis, adjusted EBIT margin declined slightly from 26% in Q2 again primarily due to the change in revenue mix.

Adjusted earnings per share increased to $0.47 from $0.40 in the third quarter 2009 primarily due to the profitable growth from the acquisition of i2. Adjusted EBITDA and adjusted EPS figures, excuse me, include the conventional items related to the amortization, stock-based compensation and the i2 acquisition transition and restructuring charges, all of which are separately identified in the tear sheet attached to the press release.

GAAP EPS was $0.20 per share for Q3 2010, compared to a loss per share of $0.07 in the same period of 2009, which included an $8.6 million charge for the repurchase of redeemable preferred stock. Total revenues increased to $158.4 million for the quarter including software and subscription revenues of $22 million as compared to total revenues of $95.9 million and software and subscription revenues of $17.2 million for the third quarter 2009. We closed 40 new software deals in this quarter, compared to 57 in the third quarter of 2009 including one large transaction of $1 million or greater in Q3, 2010, which is comparable to Q3 2009.

Our average selling price for the trailing 12 months ended September 30, 2010 was $573,000 compared to $608,000 in the second quarter of 2010, which included the favorable impact of one of the company’s largest ever transaction. As we said on the second quarter call, we expected Q3 software sales to be seasonally light, which in turned out to be the case. Likewise, our pipeline remains strong for Q4 giving us confidence in our full year software outlook.

Maintenance revenue, which is a foundational element of this business, was very strong in the third quarter. First, I want to point out that our customer retention rate on expiring maintenance contracts is exceptionally strong through the third quarter at 95.9%. By itself this is a great result and it compares quite favorably to the 92.7% through Q3 2009.

Maintenance revenue increased to $64.2 million in Q3 2010, compared to $45 million in Q3 of 2009. And the maintenance gross margin increased to 80% from 76% in Q3 2009. The gross margin increase was favorably influenced by the release of previously suspended gross revenue of approximately $4 million that was recognized in Q3 2010 upon the successful contract renewals. This brings me to the second significant point for the maintenance business.

Last quarter, we anticipated what we would -- actually saw in Q3, which is that we resolved more cases than we added for maintenance revenue, we suspended pending renewal negotiation. This is a positive sign. First, because we’re able to recognize the revenue associated with the renewals. And second, because it is an indication that our customers, especially our i2 customers are committing to the software and the product roadmap. Services revenue increased to $72.2 million from $33.6 million in Q3 2009. The Q3 revenue included about $7.6 million associated with work actually performed in Qs one and two of this year.

Upon resolving some milestones and getting some signatures, we were able to recognize the revenue this period. The costs corresponding to this revenue were also deferred in prior periods and recognized in Q3. The utilization rate was 55% for Q3 2010 as compared to 61% in Q3 2009 and 59% in Q2 of this year. Impacting our services margins, which resulted a 23.5% for the quarter compared to 26% in Q3 of last year and 24% in Q2 of this year.

After all those three quarters of combined operating activity, we feel we are executing well against our integration plan. We achieved about $6.7 million in cost savings in the third quarter of 2010 and approximately $15.7 million year-to-date. Total operating expenses as a percent of total revenue, excluding amortization of intangibles, restructuring charges and acquisition related costs, improved to 35% in Q3 2010 compared to 42% in Q3 2009.

Product development expenses this quarter increased to $17.4 million from $12.5 million in Q3 2009 primarily due to the addition of the costs associated with i2. However, as a percent of total revenue, product development cost declined to 11% from 13% in the prior year’s third quarter. Compared to last quarter, Q3 product development experienced a decrease in compensation costs and had some additional co-funded development reimbursement.

Sales and marketing expense also increased this quarter to $20.3 million from $15.9 million in Q3 2009, due to the addition of i2. However, as a percentage of total revenue, they decreased to 13% from 17% in Q3 of ‘09.

The decrease is primarily due to the leverage from the i2 deal and because commissions are low due to the lower software sales in the quarter. We expect this percentage to return to historical levels next quarter with the seasonally stronger software sales and because of year end commission accelerators. We ended the quarter with 333 people in the sales and marketing group, including 98 quota-carrying sales associates.

Similarly, general and administrative expenses increased to $17.5 million from $12.3 million in Q3, 2009. As a percentage of total revenue these costs decreased to 11% from 13% in Q3 of 2009 as we continue to gain cost leverage from a larger scale presented by the i2 acquisition.

Legal expenses increased to $3.6 million in the current quarter from approximately $700,000 in Q3 of 2009, primarily due to the Dillard’s litigation and the patent infringement litigation i2 filed against Oracle. We expect this level of legal expense to persist until we resolve these matters. Also included in G&A is $198,000 related to transition costs that should end in Q4 as virtually all transition personnel complete their assignments.

Lastly, in Q4 our compensation expenses could increase as our performance compensation would increase if we exceeded the low end of our range of earning expectations for the year.

Net interest and other expenses increased to $5.6 million in Q3 2010 primarily due to interest on the $275 million up 8% senior notes issued in connection with the acquisition of i2, amortization of bank fees and a $400,000 favorable impact due to currency exchange rate. The effective tax rate for the quarter on GAAP earnings was 31%. This deferred from the adjusted effective rate of 35% due to favorable resolution of some discrete non-recurring tax items.

The pro forma effective tax rate remains at 35%. Weighted average shares outstanding for the quarter ended September 30, 2010 was $42.2 million and is expected to remain around this level. Turning now to cash flow, we have generated $29.4 million in operating cash flow in Q3 2010, compared to 20 million in Q3 2009.

The change in operating cash flow in the current period was primarily driven by increased earnings in successful collection efforts as evidenced by our DSO in the third quarter 2010 decreasing to 56 days from 66 days in Q2 2010 and from 57 days in Q3 2009.

We spent approximately $8.4 million on capital expenditures during the quarter compared to $4.1 million of CapEx in the third quarter of 2009. With minimal capital expenditures budgeted for the fourth quarter, we expect to end the year with about $16 million to $17 million of total CapEx.

Our cash position at quarter end increased to $182.7 million including restricted cash, leaving a net debt position of approximately $90 million and a leverage ratio net of cash of 1.78 times.

As I mentioned in my earlier comments, free cash flow for the year is impacted by the following i2 related items that are discrete and are not recurring in nature. $10 million of legal costs for Dillard’s and Oracle plus $5 million in little settlements were incurred for two final pre-existing i2 matters that we didn’t think would fall into 2010.

$20 million negative impact from the i2 deferred revenue that we discussed last quarter, 15 million of acquisition related costs such as professional fees and severance costs. We expected these costs and have forecasted them to flow through the investing section of the statements of cash flows under the old purchase accounting rules.

However, under the new purchase accounting rules they are considered operating items and therefore, are flowing through cash flow from operations. The new rules became effective this year and basically amount to a reclassification.

Before I turn the call over to Hamish, I want to give an update on Dillard’s litigation matter. As previously disclosed on September 30, the judge in the Dillard’s case entered a judgment that was essentially the same as the jury’s verdict of $237 million that was disclosed back in June. Well, this was disappointing, there was really nothing new in the judge’s ruling. From our perspective, we expected this outcome and had been looking past it to subsequent steps in the appellate process.

Even though our communications about the judgment noted the matter, have been previously communicated there was a negative market reaction to information that was already in the public domain. Since the judgment and as previously disclosed, we posted a $25 million appeals bond, which suspends enforcement of the judgment and allows us to proceed with the appeals process without having to pay anything. The appeals process is expected to take at least through the end of 2011 to resolve.

The appeals process generally does not include much in the way of new discovery and therefore is not expected to require much involvement by management. We continue to believe that we have a strong position in this case and we fully expect to pursue all avenues to have this case over turned. Even under the worst case scenario, we do not view this as a significant liquidity issue for the company.

As a final point of fact, I want to reiterate that we have no other significant litigation against the company and have not experienced any negative impact to our business as a result of this matter.

In summary, we are pleased with the results of the quarter, and the continued progress that the entire organization is making in creating these supply chain company.

Now, I’ll turn the call to Hamish.

Hamish Brewer

Thank you, Pete. As I mentioned in my introductory remarks, there are a broad range of indicators that point to significant progress with the integration of i2 and I would like to discuss these in turn with you.

First of all, software, as you know we forecast a downturn in software sales in Q3 and we got that right with a modest license and subscriptions revenue of just $22 million. In isolation this result looks disappointing. However, I can assure you that this does not reflect the prospects for new sales at JDA.

In fact, we entered the fourth quarter with one of the strongest new business pipelines that I have ever seen in the company. Subsequently, I expect our full year results to be towards the high-end of our full year guidance for software license and subscription sales as well as total revenue.

Of course there are still opportunities for JDA to further enhance our go-to-market position, but it’s becoming very clear to me that our strategy of creating the undisputed leading specialists in supply chain is beginning to pay-off.

The market sees that we have the best product, the best track records of delivery and we deliver superior business results to our customers. All this is combining to create a strong competitive force in the market, resulting in high win rate and an excellent new business pipeline.

The most recent concrete indication of customer interest in JDA was just last weak,where we hosted our Annual European User Conference in the Netherlands. Attendance this year was up by 50% over last year, increasing from about 200 to 300 customer attendees.

As you can imagine for customers to be willing to spend money to attend any conferences in Europe right now is pretty impressive and is indicative I believe of the strength of the opportunity facing JDA worldwide.

Moving on to maintenance, as you know maintenance revenues are the primary engine driving earnings at JDA and I’m delighted to report that as predicted last quarter we turned the corner with i2 maintenance renewals.

We were able to release about $4 million of suspended maintenance contracts into revenue during the third quarter resulting in revenue growth to a record $64.2 million for the quarter.

The maintenance retention rates remain extremely high at 96% year-to-date. Bear in mind, that last year, i2’s retention rate was approximately 83%. So, this result tells us clearly that the i2 customer base has locked into the JDA message and seize the opportunities that lie ahead with a comprehensive and compelling product roadmaps issued to all customers last quarter.

The resulting growth in maintenance revenues has also driven maintenance gross margins to 80% for the first time at JDA, which is having a significantly positive impact on operating profitability of the company.

Consulting services is a mixed message. Revenues in the third quarter were at an all-time high. In part, this was due to some $7.6 million of consulting revenues that were recognized from work done in previous quarters, however even if you factor out this revenue, you can see that total consulting revenues are running high.

However, along with the consulting revenue growth that has resulted from the i2 acquisition, we are also working through the usual operational integration issues, and this combination is impacting margins negatively.

Looking forward, you can expect revenues to dip in the fourth quarter as they always do with a reduced number of billing days, but the dip this year is going to be stronger than usual because we do not anticipate any further significant out of period revenues to be recognized in Q4.

Right now, our primary focus remains to ensure that the effect of smooth transition of the projects we inherited from i2 and so I don’t expect us to make much progress with consulting margins until well into 2011.

Finally, despite the fact that we’re being handicapped by unprecedented levels of legal expense, as we defend ourselves against lawsuits and enforced our patents rights against Oracle, we’re still achieving a 25% EBITDA margin. The negative impacts for these one-time legal costs amount to about 210 basis points in EBITDA margin. So, you can see the strength of our underlying business.

We do not have any other significant customer disputes as Pete mentioned and consequently, I hope you agree that once we get these lawsuits behind us, the company has the potential to operate at very healthy EBITDA margins.

Furthermore, these strong EBITDA margins are now starting to be converted into strong cash flow from operations as we start to move towards the rates of cash flow production originally anticipated with the acquisition of i2.

The cash flow through operations in Q3 was higher than we anticipate in Q4, because of the combination of seasonally lower cash flow resulting from variable compensation accelerators, which we expect to be in full effect with the strong license performance anticipated and also, because in Q3 we benefited from an impressive rapid return to JDA’s recent historical range of DSOs dropping from 66 days in Q2 to just 56 days in Q3.

Once again, a very clear indication of the strong relationships that we are building with our new i2 customer base. So, overall we expect to be at the high end of our revenue guidance range for the full year, for both total revenues and software revenues.

However, due to the fact that we expect to reach about $10 million of extraordinary legal expenses, we think we will finish up around the low end of our earnings guidance.

To summarize, the integration of i2 with JDA is now well underway and the third quarter displayed numerous indicators of strength of the newly combined z company.

Maintenance margins and retention rates are at an all time high, operating expenses as a percent of revenue improved substantially. Total revenue ran at record levels and profits were near record levels.

So with that, I’d like to open up the call for questions, Jeremy.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) And our first question comes from the line of Peter Avellone with S.A.C Capital. Please go ahead.

David Rosen - S.A.C Capital

It’s actually David Rose. I just want to compliment you guys on the good quarter and actually a very good guidance for the fourth quarter in terms of revenues.

Just to understand, to the extent that you viewed the litigation expenses one-time. You are basically saying that you would have hit above the top-end of your earnings and EBITDA expectations for the year, is that a fair statement?

Peter Hathaway

I think in that range, yes. I mean, we’re saying, yes. We expect to be at the high-end of the revenue in software and then if you were to exclude the impacts of these extraordinary legal cost then we would be up at the high-end of our EBITDA as well.

David Rosen - S.A.C Capital

Okay. And I missed when you said in terms of the i2 integration; you said you were 63% of the way through?

Peter Hathaway

80.

David Rosen - S.A.C Capital

80% of the way through.

Hamish Brewer

80%. That’s right.

David Rosen - S.A.C Capital

Okay. How should we think about the annualized impact as such? Has most of that rolled through this year or should we see a material amount of that kind of roll-through into 2011?

Peter Hathaway

No. I think we’ll be pretty much through with the impact realizing impact this year.

David Rosen - S.A.C Capital

Okay. So it would be run rating by the end of this year.

Hamish Brewer

Right. Right.

David Rosen - S.A.C Capital

Okay. Thank you.

Peter Hathaway

You’re welcome.

Operator

Thank you. And our next question comes from the line of Richard Williams with Cross Research. Please go ahead.

Richard Williams - Cross Research

Congrats on the quarter, guys.

Peter Hathaway

Thanks, Rich.

Richard Williams - Cross Research

Could you run me through the geography, give us color on what the markets look like for each?

Hamish Brewer

Sure. We continue to see real strength in the Americas in new business, and the fact is that our presence and competitiveness in the Americas market just seems to be going from strength-to-strength.

As I said in my comments, I really feel that the marketplace is starting to give us a lot of credibility as the supply chain companies; I think it’s more than just a tag line. I think it’s something that people really see as something for real. We are absolutely very happy with our run rate and with the size of the new business opportunities pipeline, et cetera that we’ve got going on in the Americas.

I think that on a year-to-date basis, we’ve definitely made some headway with our business in Asia-Pacific, as we have mentioned before, the i2 business with its strong focus on discrete manufacturing, it always had the potential to help our Asia-Pacific business disproportionately to the rest of the world. So, we’ve made good headway I think year-to-date in Asia-Pacific.

I’m not sure exactly how that’s going to plan out through the balance of the year. I’m not expecting a particularly strong fourth quarter, but overall I do feel that we are making solid headway with our Asia-Pacific business.

Our European business has continued to struggle, but the thing that certainly makes me feel better is I think our prospects in the Europe are pretty good. When I look at the pipeline of new business opportunities, it seems pretty healthy and as I mentioned in my comments, we just had 50% jump in attendance at our European User Conference and it’s pretty tough for people to get budget approval to go and spend three days at a conference right now.

I treat that a very positive sign of our European customer base wanting to engage and find out what’s going on at JDA. So, hopefully we will start to see some progress with our European business next year.

Richard Williams - Cross Research

Just remembering back to NRF, a few months before we began to see the big uptick in the retail investments in your software specifically, was that attendance of the number of prospects that you met? Did that number jump up at that NRF Conference as well, do you follow me?

Hamish Brewer

Yes, I do. Yes, there was a pretty big jump this year. And I would say it was not only in terms - I mean, we can’t really accurately measure total attendees at NRF, but what we do measure is the number of meetings that we have and that kind of thing, and when we saw a huge increase in the number of meetings request that we got at NRF at the beginning of this year.

Richard Williams - Cross Research

Okay. That’s very helpful. Also, talk about the pipeline. You said it was the best perhaps ever. Can you give us more color on that?

Hamish Brewer

Not really. It’s just huge. I mean I don’t know what, without getting into specifics which I really don’t want to, but the pipeline for new business looks very robust. I mean, we have plenty of opportunities in front of us.

Richard Williams - Cross Research

That’s great. Thanks a lot guys.

Hamish Brewer

Thanks.

Operator

Thank you. And our next question comes from the line of Jeff Van Rhee with Craig-Hallum. Please go ahead.

Jeffrey Van Rhee - Craig-Hallum

Thanks. Hey, guys. Couple questions. First of all, maybe Hamish you could expand on the last question, as I look at the licenses, let me back up the overall guidance had been for somewhat weaker Q3 and a stronger Q4 as it's pretty typical on a seasonal basis, but if you look at the license numbers for JDA down 44% year-over-year and then for i2 down 20% year-over-year, can expand on the contrast between Q3 that was down materially year-over-year and at Q4 that you obviously had a lot of bullishness. Help us get our hands around those two?

Hamish Brewer

It’s just the flow of the pipeline, when we look to the pipeline for the second half and we did an analysis in July before our earnings call, we could just see that the number of deals that were timed to land in the third quarter was light and the number of deals that were timed in the third quarter was strong. It ebbs and flows. I think as you rightly pointed out, Jeff, there is a tendency in the third quarter for it to be light, that you’ve got vacations and all that stuff.

It’s tough quarter just from absent any other factors, but when we looked at the flow of the deals there just wasn’t much therein Q3, but as we suspected, even back in July a strong pipeline in Q4 and I’m here to reconfirm that that’s the case.

Jeffrey Van Rhee - Craig-Hallum

Okay. And then I guess just, not to pass it too closely, but the annual guidance that you had said last quarter at/or above the high end of the previous ranges and here you are talking now probably at the higher end of the ranges. Understanding it’s parsing it very closely, what did the margin change there?

Peter Hathaway

I think the biggest change to the margins that from our...

Hamish Brewer

No, I think he meant what was the change, the difference in delta, if any. I don’t think there was a significant delta. The only delta was really the passage of time. Back in July, we had less concrete visibility into Q4, we obviously feel we’re closer to Q4 to-date.

But, if you’d asked us my impression back then was that from a total revenue perspective, we thought we were going to be at the high end of the range and we still feel that way.

Jeffrey Van Rhee - Craig-Hallum

Two other ones if I could for a second here. On the expense savings maybe Pete could just expand a little bit, I think last quarter you had said we were at a $5 million per quarter run rate in terms of savings when you compare the combined entity to this year Q2 versus the previous year, and then in Q3, if I heard you right the commentary was we’re saving around 6.7 million now per quarter year-over-year. Did I hear those right?

Peter Hathaway

Yes.

Jeffrey Van Rhee - Craig-Hallum

Okay. So sequentially, I think you had said or implied at a minimum that that expenses should be roughly flattish, when you had guided for this quarter, yet we were down seven sequentially. So, if we were down seven sequentially, it just implies to me that the year-over-year run rate of savings is a whole lot higher than 6.7, if we were at 5 last quarter. Has something changed in the 26 million in the expected gross savings?

Peter Hathaway

No. It really hasn’t. I think part of the decline can be explained by the lower commissions than following the lower software sales for the quarter that’s a factor as well as just overall incentive compensation, was down a bit too because of the lower EBITDA for the quarter.

Jeffrey Van Rhee - Craig-Hallum

Okay. That’s helpful and last one I promise. And then in the maintenance catch-up, I think you had said previously there was 4 million outstanding maintenance that you would get in the second half that you were pursuing, can you expand on that? Clearly you got it all and you got it early, both pretty positive signs. Just help us understand why you got it earlier and given this was the first time that you’ve had to put them on your paper, are you surprised you got it all?

Peter Hathaway

The observations I would make about that are; I’m not surprised that we managed to convert these contracts. What I am surprised that we got the maintenance retention was as high as it was. I don’t think anybody expected it to really come in that high. So, I think we’ve done a better job than we expected to there, but the fact that we’ve gotten most of those contracts back doesn’t surprise me. It was really a matter of when, not if but I’m very obviously happy to really see that– like I said we turned the corner, we are definitely closing them.

Obviously, as every quarter goes by, we release 4 million of suspended contracts into revenue in the third quarter, there’s also some new contracts that would have gone into suspension during the course of the third quarter. So, the net impact wasn’t 4 million, but the fact that we got 4 million of previously suspended contracts closed on, move on is an excellent sign.

Jeffrey Van Rhee - Craig-Hallum

Okay. Great. I’ll let somebody else jump on. Thanks.

Peter Hathaway

Thanks, Jeff.

Operator

Our next question comes from the line of Patrick Walravens with JMP Securities. Please go ahead.

Patrick Walravens - JMP Securities

Thank you. Forgive me if I missed this, but did you provide any sense as to what we could expect for 2011?

Hamish Brewer

No, we didn’t. No I think we do our 2011 guidance as we usually do when we get to the earnings announcement in January.

Patrick Walravens - JMP Securities

Okay. Let me just ask one anyway. You can just say no, but, can you give us any pointers on how about we should think about what cash flow will do in 2011?

Peter Hathaway

Well, what I can point you to is a pro forma that we put in a presentation we posted on our website, but I think it’s pretty clear to say that we’re comfortable with $100 million or more if you just take 2010 and adjust it for some of the one-time items, expect some growth into 2011 cash flow it should be $100 million or in excess thereof.

Patrick Walravens - JMP Securities

Okay. And then how should we think about, I mean clearly part of the strategy here is continuing to roll up this space. How long before we might see another significant acquisition and do you feel like you need to wait until Dillard’s is resolved before buying another sort of substantial business?

Peter Hathaway

I think we said right at the get when we acquired i2 in January that our goal internally was to be acquisition ready in 18 months and I’m still working towards that schedule and my hope and expectation, not expectation maybe, but my hope, sincere hope, is that we will be able to get the Dillard’s litigation behind us in time to not slow us down on that schedule.

So, let’s say by the middle of next year hopefully we have it behind us. Now obviously if we end up having to fight our way through the entire appeals process, then that won’t happen. At that point, I think what we’ll be weighing up is the opportunity to go and do another transaction versus any risk or whatever associated with the cost of Dillard’s.

It's hard to say exactly how things are going to look in a year’s time in the middle of 2011, but like I say, my hope is that by then we will have made some progress with the lawsuit anyway.

Patrick Walravens - JMP Securities

Okay. And so Hamish, when you came to visit I think in August, you had no communications with them at all. Can you comment on whether that’s changed?

Hamish Brewer

You know, we’re in sort of not direct communications, but they are sort of indirect communications going on back and forth with lawyers. Nothing material has happened as a result of those communications. I don’t have anything interesting to report to you, but we are in communications and I don’t think it’s a secret that if we can, I mean, for us this is not an emotional issue, it’s an economic issue and if we can find a way out of it then we will.

Patrick Walravens - JMP Securities

Last question, so I mean, it’s just great to see where the revenue and the EPS came out despite pretty sizeable license and net fees versus consensus and if you had gone back a couple years at JDA, it tended not to work out that way. So, have you changed the way that you manage the business or the way that you think about your guidance that has made this business more able to absorb a licenseness?

Hamish Brewer

We haven’t really changed anything very much at all. I think what you’re seeing is some degree the benefit of a bit more scale. When you’re small and you miss a couple of large software transactions, it really puts a hole in things. It’s tough to deal with that. When you’ve got more volume, and then we’ve got almost a quarter of a billion of maintenance revenue cranking along 80% margins,. I mean it give us a certain amount of cushion.

Patrick Walravens - JMP Securities

Great. Thanks very much.

Operator

Thank you. (Operator Instructions) Management, I show no further questions in queue. Please continue.

Hamish Brewer

Okay thanks, Jeremy and thanks for joining us on the call here and we look forward to announcing the full year results in January. Talk to you then.

Operator

Ladies and gentlemen, this concludes JDA Software’s third quarter 2010 earnings conference call. Thank you for your participation. You may now disconnect.

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THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

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