Margin Pressure Continues at Chordiant Software

May.15.08 | About: Chordiant Software (CHRD)

Chordiant Software, Inc. (NASDAQ:CHRD) faces strong headwinds for the remainder of 2008, and does not appear to have any plans to alter its trajectory. License revenues that grew 33% in fiscal September 2007, have fallen off sharply down 48% year to year for the first six months of 2008.  March quarter results were very, very disappointing with license revenues for the quarter of $4.8MM down 75% year to year and down 46% quarter to quarter. With over 50% of revenues coming from financial services sector,  Chordiant will likely be under top line pressure throughout FY08. 

Chordiant's MGI Index scores, - key metrics of corporate business model efficiency - have all either declined or collapsed from December 2007 to March of 2008. Although management has implemented a significant expense reduction program, the collapsing MGI metrics combined with current license revenues trends indicate that Chordiant will need a much more dramatic reduction in its cost structure in order to return to break-even.

The dramatic miss is being attributed to the difficult macro-economic environment, in particular in the financial services sector.  While management continues to be encouraged by the growing pipeline of opportunities, the poor results underscore the elongation of the sales cycle and the prospect that business could remain disappointing for some time to come.

Given the negative MGI Index scores, the high percentage of revenues derived from a handful of customers in the financial services industry, and the large amount of lower-margin services revenues, 2008 looks to be a very challenging year for Chordiant Software.