CDC Software Corporation (NASDAQ: CDCS), a hybrid enterprise software provider of on-premise and cloud deployments, today announced financial results for the quarter ended March 31, 2011. For the first quarter of 2011, Non-GAAP revenue(a) was $52.6 million and Non-GAAP net income(a) was $3.1 million, or $0.11 in Non-GAAP earnings per share(a), compared to Non-GAAP revenue of $51.7 million and Non-GAAP net income of $8.0 million, or $0.28 in Non-GAAP earnings per share in the first quarter of 2010.
In the first quarter of 2011, CDC Software continued to invest strongly in sales and marketing and research and development (R&D) for both its on-premise and cloud segments, and reported record revenue and SaaS bookings in its Cloud business. For the first quarter of 2011, CDC Software’s Cloud business reported Non-GAAP revenue of $6.8 million, an increase of 51 percent from $4.5 million in the first quarter of 2010. The Cloud segment reported negative Adjusted EBITDA(a) of $206,000 in the first quarter of 2011, compared to Adjusted EBITDA of $1.2 million in the first quarter of 2010. Earnings in the first quarter of 2011 have continued to be impacted by increased investments in sales and marketing and R&D. As previously discussed, CDC Software believes earnings in 2011 will be lower than 2010 given the company’s increased investments in its cloud-based assets.
Operating cash flow for the quarter ended March 31, 2011 increased 62 percent to $8.9 million, compared to $5.5 million for the quarter ended March 31, 2010. DSOs (days sales outstanding) in the first quarter of 2011 was 73 days, compared to 80 days for the first quarter of 2010. CDC Software had cash on hand of $34.9 million as of March 31, 2011 and minimal debt.
First quarter 2011 application sales, which is comprised of license revenue plus Secured Total Contract Value (STCV) for Software-as-a-Service (SaaS) sales secured, increased more than 52 percent to $12.5 million during the first quarter of 2011, from $8.2 million in the first quarter of 2010. Application sales for the first quarter of 2011 included license revenue of $6.4 million and STCV, or bookings, for Software-as-a-Service (SaaS) sales of $6.1 million, compared to license revenue of $7.9 million and STCV of $260,000 in the first quarter of 2010. STCV is the contract dollar amount for the duration of the contracts for all SaaS contracts secured, including new logo contracts, upsell, rental, as well as all renewals received by the end of the quarter.
First quarter 2011 Total Contract Backlog (TCB) increased approximately 6 percent to $144.7 million, compared to $136.6 million in the fourth quarter of 2010. Cloud TCB in the first quarter of 2011 was at its highest levels since the company started its Cloud business in the fourth quarter of 2009. TCB is the sum of the remaining revenue value of SaaS and term license or rental contracts through the end of their respective terms, the value of contracted renewals for current SaaS and rental contracts based on 12 months of value, plus maintenance revenues from existing contracts over the previous 12 months. Also, the number of enterprise and SaaS deals in the first quarter of 2011 increased by approximately 16 percent to 340, from 294 in the first quarter of 2010.
Total Non-GAAP recurring revenue(a), which CDC Software defines as Non-GAAP maintenance(a) plus SaaS revenue, increased approximately 8 percent to $30.2 million in the first quarter of 2011, from $28.0 million in the first quarter of 2010. Maintenance retention rates continued to be strong at more than 90 percent for the first quarter of 2011. First quarter 2011 services revenue was $14.9 million, compared to $14.8 million in the first quarter of 2010. During the first quarter of 2011, approximately 57 percent of license revenue was derived from North America , 28 percent from EMEA, and 15 percent from Asia/Pacific.
Adjusted EBITDA was $5.6 million in the first quarter of 2011, compared to $10.6 million in the same period in 2010. First quarter 2011 Adjusted EBITDA margin(a) was 11 percent, compared to 20 percent in the same period in 2010. In addition to the significant investments in our Cloud business, especially in sales and marketing and R&D, Adjusted EBITDA in the first quarter of 2011 also was impacted, in part, by expenses related to the integration of acquired businesses acquisitions and legal expenses.
“During the first quarter of 2011, we saw solid growth in our Cloud business despite the first quarter typically being lower than other quarters,” said Bruce Cameron, president of CDC Software. “While our profitability was impacted primarily by the upfront costs associated with our Cloud investments, which we expect to continue in the foreseeable future, we are positioning ourselves for higher organic growth in that business. Our increased marketing investments also included a totally re-designed website and several scheduled user conferences, trade shows and marketing programs. We believe that we are starting to see returns on these investments. Our recurring revenue as a percentage of total revenue in the first quarter of 2011 was at 57 percent, compared to 48 percent in the first quarter of 2009, and we believe that will continue to grow. As we have previously stated, our strategy is to develop recurring revenue streams reaching closer to 70 percent of total revenue over the next few years, after completion of our planned SaaS acquisitions and our strategic investments in SaaS companies.
Cameron added, “During the first quarter of 2011, our revenue from partnership and strategic alliances represented a strong 23 percent of total license revenue. Additionally, CDC Software continued to grow its business in emerging markets like India , where it won its largest license deal of the first quarter. In fact, we have been stepping-up our sales and marketing activities in markets such as Germany, Brazil, Australia, China, India, Poland and Russia, which we believe hold solid sales potential for our solutions. The company has also been seeing a solid trend of new business, which was up to 34 percent of license revenue in the first quarter of 2011, its highest levels in three years. Our total pipeline so far in 2011 is up to $81.5 million, compared to $79.7 million in the first quarter of 2010, with our cloud pipeline increasing approximately 20 percent to $19.9 million, compared to $17.7 million in the same period in 2010.”
CDC Software’s Cloud business provides global SaaS applications with functionality in ERP, member management, e-Commerce, supply chain and global trade management. Specifically, the Cloud business includes the CDC gomembers, CDC eCommerce and CDC TradeBeam product lines. During the first quarter of 2011, the Cloud business reported total Non-GAAP revenue of $6.8 million, of which $4.7 million was SaaS revenue, an increase of 114 percent compared to SaaS revenue of $2.2 million in the first quarter of 2010.
New cloud products delivered in the first quarter of 2011 included Ross in the Cloud, the cloud version of the company’s popular ERP suite of applications, and new version releases of TradeBeam, CDC eCommerce and CDC gomembers.
During the first quarter of 2011, six of the top 10 SaaS deals were from the company’s TradeBeam product line, and included a six figure deal with a major air express transportation carrier. In addition to the transportation and third party logistics markets, other top 10 deals for the first quarter of 2011 were from the aerospace/automotive, non-profit/associations, retail/wholesale, manufacturing and telecom/broadcasting markets.
“We believe these strong metrics indicate impressive progress and traction within our Cloud business so far in 2011,” Cameron said. We continue to believe the cloud market will experience significant growth over the next five years. For these reasons, we have been increasing our investment in this fast growth business which requires a different operational focus, expertise and management approach than our on-premise business.”
During the first quarter of 2011, CDC Software introduced several new products and version upgrades for its core on-premise ERP, supply chain management and complaint management applications. Other new products included Pivotal Sales Force Automation, a new sales module for the Pivotal 6.0 CRM platform and Ross version 6.4.3 which includes new functionality in export documentation, reporting, enhancements in sales order processing and new translations in Chinese. Major sales wins in the first quarter of 2011 included a new Pivotal CRM deal to a large financial services company in India; an installed-base CDC Factory deal to a leading natural products customer; a new Ross ERP deal to a life sciences company and an installed-base CDC Respond deal to a major U.K.-based financial services company.
Earlier this month, CDC Software held two U.S. user conferences for its two main product lines. At both user conferences, the full line of CDC Software solutions were showcased in numerous sessions where cross-selling opportunities were highlighted. User conferences for other product businesses, as well as international customers, are planned throughout the remainder of the year.
CDC Software hosted CDC Galaxy, its CRM user conference, where more than 200 attendees converged to hear about the Pivotal CRM roadmap and its cloud strategy. According to Pivotal customer Tom Dobbe, vice president of Farm Credit Services of America, “The very best thing about this conference was the natural environment it creates for users to network – with CDC Pivotal, your partners, your prospects, and all of us customers.”
Also this month, nearly 200 Ross ERP customers and partners attended Ross SIG, a conference sponsored by the user community of Ross Systems. At this venue, CDC Software presented its Statement of Direction for Ross ERP that includes the planned launch of Ross ERP 7.0, its next generation of ERP solutions. One metals manufacturer and long-time Ross customer commented about the Ross user conference, ”I left San Antonio with an overwhelming “team” feeling. It was great to mingle with everyone in Ross and to hear how CDC and Ross are working with the users.”
Strategic Alliance Program:
Another key part of CDC Software’s growth strategy for both its on-premise and Cloud businesses is its Strategic Alliance Program. For the first quarter of 2011, strategic alliance partnership revenue grew 65 percent, compared to the first quarter of 2010. During 2010, CDC Software added a new original equipment manufacturer (OEM) partner, Compusoft Development, a developer of ERP reporting solutions. In December 2010, CDC Software signed an OEM partnership agreement with MIR3, a developer of real-time Intelligent Notification software, which is expected to help CDC Software products expand into the IT service management and crisis management markets. In the first quarter of 2011, seven new deals have closed under this partnership.
Through its Alliance Program, CDC Software has also continued to focus on emerging economies such as India, China, Brazil, Russia and Eastern Europe, since the company believes those regions present significant growth opportunities for both its cloud and on-premise products in the future.
Between August 2009 and March 31, 2011, CDC Software, management, the CEO and family members and certain affiliates of the company, have purchased an aggregate of approximately 1.5 million shares at an average price of $8.10 per share. The Company has continued to repurchase its shares in the open market through a 10b5-1 trading plan.
“We are very pleased with the strong growth of our Cloud business in the first quarter of 2011 and our 62 percent increase in operating cash flow,” said Peter Yip, CEO of CDC Software. ”While our profitability is impacted by the investments we are making in our Cloud business, we believe this will position us for strong growth in the future. Already, we have reported record Non-GAAP revenue in the company’s Cloud business and the highest level of total SaaS secured bookings in the first quarter of 2011 since we started our Cloud business in the fourth quarter of 2009. With this momentum, we have been continuing to progress with our previously announced goal to make recurring revenue an increasingly significant part of the company’s total revenue. Notably, we are also exploring various alternatives to maximize shareholder benefit from our Cloud business. I am also pleased with the planned corporate governance improvements, as well as our plan to reduce inter-company debt.”
The Company's senior management will host a conference call for financial analysts and investors, Thursday, May 19, 2011 at 8:30 AM EDT.
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a) Adjusted Financial Measures
This press release includes Non-GAAP revenue, Non-GAAP net income, Non-GAAP earnings per share, Adjusted EBITDA, Non-GAAP recurring revenue and Adjusted EBITDA margin, which are not prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) (collectively, the "Non-GAAP Financial Measures"). Non-GAAP Financial Measures are not alternatives for measures such as net income, earnings per share, and others, prepared under GAAP. These Non-GAAP Financial Measures may also be different from non-GAAP measures used by other companies. Non-GAAP Financial Measures should not be used as a substitute for, or considered superior to, measures of financial performance prepared in accordance with GAAP.
Investors should be aware that these Non-GAAP Financial Measures have inherent limitations, including their variance from certain of the financial measurement principals underlying GAAP, should not be considered as a replacement for GAAP performance measures, and should be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. These supplemental Non-GAAP Financial Measures should not be construed as an inference that the Company's future results will be unaffected by similar adjustments determined in accordance with GAAP. Reconciliations of Non-GAAP Financial Measures to GAAP are provided herein immediately following the financial statements included in this press release.
(b) Revised 2010 Information
Results provided herein for 2010 may be different than those previously reported in our press releases due to certain year-end adjustments required to be made in connection with the audit of our financial statements for the year ended December 31, 2010.
All dollar amounts are in U.S. dollars
Special Note Regarding CDC Software Financial Results
The financial results provided herein apply only to CDC Software Corporation, a subsidiary of CDC Corporation. These financial results do not apply to, and are not indicative of, the consolidated financial results of CDC Corporation, or the financial results of CDC Games Corporation, China.com, Inc. or any of their respective subsidiaries. Investors are cautioned not to place reliance on the financial results set forth herein for purposes of any investment decision with respect to the shares of CDC Corporation, and should read the foregoing in conjunction with the reports and other materials filed with the United States Securities and Exchange Commission by CDC Corporation and CDC Software Corporation, from time to time.
CDC Software (NASDAQ: CDCS), The Customer-Driven Company™, is a hybrid enterprise software provider of on-premise and cloud deployments. Leveraging a service-oriented architecture (SOA), CDC Software offers multiple delivery options for their solutions including on-premise, hosted, cloud-based SaaS or blended-hybrid deployment offerings. CDC Software’s solutions include enterprise requirements planning (ERP), manufacturing operations management, enterprise manufacturing intelligence, supply chain management (demand management, order management and warehouse and transportation management), global trade management, eCommerce, human capital management, government and not-for-profit, customer relationship management (CRM), complaint management, business intelligence/analytics and aged care solutions.
CDC Software’s recent acquisitions are part of its “integrate, innovate and grow” strategy. Fueling the success of this strategy is the company’s global scalable business and technology infrastructure featuring multiple complementary applications and services, domain expertise in vertical markets, cost effective product engineering centers in India and China, a highly collaborative and fast product development process utilizing Agile methodologies, and a worldwide network of direct sales and channel operations. This strategy has helped CDC Software deliver innovative and industry-specific solutions to more than 10,000 customers worldwide within the manufacturing, distribution, transportation, retail, government, real estate, financial services, health care, and not-for-profit industries. For more information, please visit www.cdcsoftware.com.