JDA Software recently reported both its fourth quarter and full 2010 financial results, and the results imply both good and not-so-good implications from the recent acquisition of i2 Technologies.
The headlines of JDA’s 2010 financial performance included a 60 percent increase in total revenues to $617.2 million. Software license revenues in the fourth quarter increased to near 33 percent. However, JDA also incurred a 32 percent reduction in operating income and cash flow from operations, no doubt brought on by unplanned expenses related to the i2 acquisition. Deal sizes increased, with the average deal size climbing to $601,000.
These results also provide further quantitative evidence of the impact of the acquisition of i2 Technologies that was consummated in January of 2010.
The good news is that the acquisition is contributing rather positively to JDA results, amounting to an estimated 40 percent of revenues during the calendar year. Readers may recall that when the first i2 deal was announced in 2008, JDA indicated that its plans for i2 included a software sales model reflected as a “CD replication”, meaning that potential customers would receive standard, un-customized software. That was rather significant at the time, since i2 was known for its industry-centric innovation in supply chain technology, and was quickly transitioning to a customized software and service provider with some rather significant customers. It seemed during the second and successful attempt in November 2009, JDA became more grounded in the reality of i2’s software business model. The quantitative evidence, we believe, is reflected in both maintenance and consulting services revenues. During Q4, maintenance revenues increased by 37 percent, and consulting revenues increased by an eye-popping 98 percent, no doubt brought about by the influence of i2’s installed base.
In the not so good category, JDA inherited the i2 lawsuit involving the alleged failed implementation at Dillard’s Department Stores, where a Texas jury awarded Dillard’s $246 million in damages in back in June. There is also another patent related lawsuit involving Oracle. During Q4, JDA incurred $14 million in ongoing legal costs, and has now boosted its 2011 reserve for a possible settlement to $19 million, from a previous $5 million. The company also indicates that both ongoing litigations are expected to incur a further $10 million in ongoing legal expenses.
In essence, the i2 acquisition has brought a double-edged sword and it seems clear that JDA management wants to more forward with the positive, and quickly shed the litigation history it has inherited.
As was noted in a previous commentary at the time of JDA’s acquisition of i2, existing or prospective customers of JDA or i2 should insist on hearing plans for continued software integration, innovation and product development plans.
JDA has some hurdles to overcome in increasing profitability and insuring that ongoing litigation expenses are minimized. There are very aggressive business plans in-place for 2001, including a goal to increase software revenues in a range of 32 to 45 percent. That implies that JDA sales teams will be very busy knocking on doors, and readers should be prepared to ask the right questions.
Readers, share the highlights of some of your recent experiences with JDA in the Comments section related to this posting.