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JDA Software Group Inc. Reports Operating Results (10-Q)

May 10, 2010 | About:
10qk

10qk

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JDA Software Group Inc. (JDAS) filed Quarterly Report for the period ended 2010-03-31.

Jda Software Group Inc. has a market cap of $1.1 billion; its shares were traded at around $26.52 with a P/E ratio of 19.5 and P/S ratio of 2.86. Jda Software Group Inc. had an annual average earning growth of 15.1% over the past 10 years.JDAS is in the portfolios of Jim Simons of Renaissance Technologies LLC, Chuck Royce of Royce& Associates.

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 have initially recorded $66.0 million of goodwill in the i2 acquisition and $116.1 million in other identifiable intangible assets, including $76.2 million for customer-based intangibles (maintenance relationships and future technological enhancements, service relationships and a covenant not-to-complete), $25.6 million for technology-based intangibles consisting of developed technology and $14.3 million for marketing-based intangibles consisting of trademark and trade names. However, the purchase price allocation has

On December 10, 2009, we issued $275 million of five-year, 8.0% Senior Notes (the Senior Notes) at an initial offering price of 98.988% of the principal amount. The net proceeds from the sale of the Senior Notes, which exclude the original issue discount ($2.8 million) and other debt issuance costs ($6.7 million) were placed in escrow and subsequently used, together with cash on hand at JDA and i2, to fund the cash portion of the merger consideration in the acquisition of i2.

We Expect to Realize Significant Cost Synergies as We Integrate and Combine the Two Companies. We expect to realize approximately $20 million in net cost savings during 2010. The expected net costs savings include about $6 to $7 million of gross margin compression from the effects of revenue attrition, especially maintenance, during the integration of i2. We are actively working on the integration of the two companies and we believe we are on track to achieve these synergies. We achieved approximately $4.0 million, or approximately 20% of our total targeted cost synergies in first quarter 2010, which included only two months of combined post-merger activity.

Our Financial Position is Strong and We Expect to Continue Generating Positive Cash Flow from Operations. We had working capital of $150.9 million at March 31, 2010 compared to $345.7 million at December 31, 2009. The working capital balance at March 31, 2010 and December 31, 2009 included $155.8 million and $76.0 million, respectively, in cash and cash equivalents. In addition, working capital at December 31, 2009 included $287.9 million of restricted cash, consisting primarily of net proceeds from the issuance of the Senior Notes (see Contractual Obligations), 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 $107.9 million or 74 days sales outstanding (DSO) at March 31, 2010 compared to $68.9 million or 58 days DSO at December 31, 2009. 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 March 31, 2010 also includes the impact of receivables assumed in the i2 acquisition, and the DSO result is higher as the calculation only includes two months of i2 revenues. We generated $12.2 million in cash flow from operating activities in first quarter 2010 compared to $33.1 million in first quarter 2009. The decrease in cash flow in first quarter 2010 is due primarily to our net loss for the quarter, which includes $6.7 million of acquisition-related costs, $7.8 million of restructuring charges, the majority of which are related to actions taken as a result of the i2 acquisition and $717,000 of non-recurring, transition-related costs for salaries and retention bonuses for i2 employees that are being retained for a defined period of time. In addition, we had lower cash provided by working capital in the three months ended March 31, 2010 due to the timing and payment of accounts receivable. Accounts receivable increased approximately $7.2 million in the three months ended March 31, 2010 due to increased sales over the past twelve months and decreased $13.6 million in the three months ended March 31, 2009 due primarily to the collection of an unusually large receivable.

We expect to increase our cash balance during 2010 through the generation of between $100 million to $110 million of operating cash flow, offset in part by approximately $22 million of interest payable on the Senior Notes, $20 million of capital expenditures, $10 million related to the payment of transaction-related costs, and $10 million of cash taxes primarily related to state, local and foreign taxes. The increase in capital expenditures in 2010 is primarily driven by the expansion of our Managed Services offering (approximately $8 million) as well as the addition of i2. While our Managed Services business requires more capital than our other offerings, we expect this business to produce a strong return on investment and form a major component of our organic growth in coming years. Our weighted average outstanding shares are expected to be between 41 million and 42 million for 2010.

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