JDA Software Group Inc. Reports Operating Results (10-Q)
Jda Software Group Inc. has a market cap of $1 billion; its shares were traded at around $24.05 with a P/E ratio of 17.1 and P/S ratio of 2.6. Jda Software Group Inc. had an annual average earning growth of 15.1% over the past 10 years.JDAS is in the portfolios of Steven Cohen of SAC Capital Advisors, Jim Simons of Renaissance Technologies LLC, Chuck Royce of Royce& Associates, George Soros of Soros Fund Management LLC.
Highlight of Business Operations: Acquisition of i2 Technologies, Inc. On January 28, 2010, we completed the acquisition of i2 Technologies, Inc. (i2) for approximately $599.8 million, which includes cash consideration of approximately $431.8 million and the issuance of approximately 6.2 million shares of our common stock with an acquisition date fair value of approximately $168.0 million, or $26.88 per share, determined on the basis of the closing market price of our common stock on the date of acquisition (the Merger). The combination of JDA and i2 creates a market leader in the supply chain management market. We believe this combination provides JDA with (i) a strong, complementary presence in new markets such as discrete manufacturing; (ii) enhanced scale; (iii) a more diversified, global customer base of over 6,000 customers; (iv) a comprehensive product suite that provides end-to-end supply chain management (SCM) solutions; (v) incremental revenue opportunities associated with cross-selling of products and services among our existing customer base; and (vi) an ability to increase profitability through net cost synergies within twelve months after the Merger.
The Merger is being accounted for using the acquisition method of accounting, with JDA identified as the acquirer, and the operating results of i2 have been included in our consolidated financial statements from the date of acquisition. Under the acquisition method of accounting, all assets acquired and liabilities assumed will be recorded at their respective acquisition-date fair values. We initially recorded $66.0 million of goodwill during the three months ended March 31, 2010 and made subsequent adjustments of $3.5 million during the three months ended June 30, 2010 to reduce the goodwill balance to $62.5 million. In addition, through June 30, 2010 we have recorded $113.2 million in other intangible assets, including $74.6 million for customer-based intangibles (maintenance relationships and future technological enhancements, service relationships and a covenant not-to-compete), $24.3 million for technology-based intangibles consisting of developed technology and $14.3 million for marketing-based intangibles consisting of trademark and trade names.
In February 2010, the Board approved a stock-based incentive program for 2010 (2010 Performance Program). The 2010 Performance Program provides for the issuance of contingently issuable performance share awards under the 2005 Incentive Plan to executive officers and certain other members of our management team if we are able to achieve a defined adjusted EBITDA performance threshold goal in 2010. A partial pro-rata issuance of performance share awards will be made if we achieve a minimum adjusted EBITDA performance threshold. The 2010 Performance Program initially provides for the issuance of up to approximately 555,000 of targeted contingently issuable performance share awards. The performance share awards, if any, will be issued after the approval of our 2010 financial results in January 2011 and will vest 50% upon the date of issuance with the remaining 50% vesting ratably over a 24-month period. Our performance against the defined performance threshold goal will be evaluated on a quarterly basis throughout 2010 and share-based compensation will be recognized over the requisite service period that runs from February 3, 2010 (the date of board approval) through January 2013. A deferred compensation charge of $13.8 million has been recorded in the equity section our balance sheet, with a related increase to additional paid-in capital, for the total grant date fair value of the current estimated awards to be issued under the 2010 Performance Program. Although all necessary service and performance conditions have not been met through June 30, 2010, based on first half 2010 results and the outlook for the remainder of 2010, management has determined that it is probable the Company will achieve its minimum adjusted EBITDA performance threshold. As a result, we have recorded $4.6 million in stock-based compensation expense related to these awards in the six months ended June 30, 2010, including $2.3 million in second quarter 2010. If we achieve the defined performance threshold goal we would expect to recognize approximately $9.2 million of the award as share-based compensation in 2010.
Financial and Cash Flow From Operations. We had working capital of $156.7 million at June 30, 2010 compared to $345.7 million at December 31, 2009. The working capital balances include cash of $158.0 million and $363.8 million, respectively, which includes restricted cash of $11.8 million and $287.9 million, respectively. The restricted cash balance at December 31, 2009 consisted primarily of net proceeds from the issuance of the Senior Notes (see Contractual Obligations) of approximately $265 million, which together with cash on hand at JDA and i2, was used to fund the cash portion of the merger consideration in the acquisition of i2 on January 28, 2010.
Net accounts receivable were $116.1 million or 66 days sales outstanding (DSO) at June 30, 2010 compared to $107.9 million or 74 days DSO at March 31, 2010 and $68.9 million or 58 days DSO at December 31, 2009 and $62.7 million or 57 days DSO at June 30, 2009, which represented an historical low DSO result for the Company. Our quarterly DSO results historically increase during the first quarter of each year due to the heavy annual maintenance renewal billings that occur during this time frame and then typically decrease slowly over the remainder of the year. The increase in DSO at June 30, 2010 compared to June 30, 2009 reflects the impact of uncollected receivables assumed in the i2 acquisition.
We generated $9.6 million in cash from operating activities in the six months ended June 30, 2010 compared to $60.5 million in the six months ended June 30, 2009. The decrease in cash flow is due primarily to an $8.0 million decrease in the current period net income, which includes $7.6 million of acquisition-related costs, $12.3 million of restructuring charges and $1.4 million of non-recurring, transition-related costs for salaries and retention bonuses for i2 employees. In addition, changes in working capital utilized approximately $29.7 million of cash in the six months ended June 30, 2010 and provided approximately $20.6 million of cash in the six months ended June 30, 2009, due primarily to the timing and payment of accounts receivable. Accounts receivable increased approximately $14.9 million in the six months ended June 30, 2010 due primarily to increased sales over the past twelve months and decreased $16.8 million in the six months ended June 30, 2009 due primarily to the collection of an unusually large receivable. In addition, operating cash flows for the six months ended June 30, 2010 were negatively impacted by decreases in deferred revenue balances from maintenance and other recurring revenue contracts assumed in the i2 acquisition that were renewed in the months just prior to the acquisition and for which the related cash was collected by i2 prior to the acquisition close date.
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