QAD Q1 '21 Earnings Preview

QAD (QADA) reports its fiscal Q1 ’21 results on Wednesday, May 27. Similar to many other software companies that have reported since the COVID-19 outbreak, we expect the results to reflect disruption from the pandemic. Specifically, we anticipate marked declines in both license and services revenue along with a slowdown in cloud bookings growth. Between management’s recurring revenue guidance and muted Street expectations for non-recurring revenues, however, we believe QAD will meet or exceed the consensus top line estimate. On the other hand, our projections for the quarter include a larger loss than anticipated by the Street as we assume a pull-forward in expenses associated with the company’s annual user conference, which is typically held in QAD’s fiscal Q2. Beyond Q1, the fallout from the COVID-19 pandemic remains highly uncertain, so we expect management to once again provide limited guidance for recurring revenue in the current quarter. As our model already reflects ongoing challenges in the near-term, we remain comfortable with our estimates and $51.00 price target, which represents a FY ’21 EV/EBITDA multiple of 3.0x.

For Q1, we project $74.5 million in revenue, $(0.8) million in adjusted EBITDA and $(0.14) in non-GAAP EPS. Our estimates are mixed relative to Street expectations for $73.9 million in revenue, $0.3 million in adjusted EBITDA and $(0.06) in non-GAAP EPS. We note that we were previously projecting adjusted EBITDA and non-GAAP EPS of $(2.5) million and $(0.22), respectively, but have raised our estimates to better calibrate the potential impact of the company’s cancelation of its annual user conference. As for other assumptions underlying our expectations for the quarter, we expect only nominal license revenue of $1.5 million and a Y/Y decline of 18% in professional services revenue to $15.0 million due to project delays and limitations on on-site visits. Our recurring revenue estimates match guidance for $31.0 million in subscription fees and $27.0 million in maintenance. Similar to the prior quarter, the uncertainty associated with COVID-19 is likely to limit management’s guidance to expected recurring revenue levels in Q2. While QAD indicated in its 10-K that some customers have sought relief during the pandemic, we believe these requests have largely been for extended payment terms as opposed to outright fee reductions. We therefore remain comfortable with our current forecasts for Q2 subscription fees of $32.3 million and maintenance revenue of $26.3 million, and we expect the company to guide accordingly.

Our report with model and disclosures is available here.