QAD Finally Breaks The Red Ink Streak, But
On March 13, QAD Inc.
(NASDAQ: QADI), a provider of enterprise applications for manufacturing
and distributing organizations, reported revenue of $59.2 million for
the fourth quarter ended January 31, 2001, a 16.4% decline compared with
$70.9 million for the fourth quarter of fiscal year 2000 (See Figure 1).
However, QAD claims that its year-ago revenue figure was embellished by
$12.1 million in license revenue from a single customer, which was a part
of the largest single contract in the company's history.
The Q4 2001 was the only
profitable quarter in the year. Net income was $2.4 million, compared
to the fourth quarter of fiscal 2000, when the QAD reported net income
of $2.1 million. Still, this is mainly attributable to curbing operating
expenses that were 16% lower than a year ago and that merely reflect the
effectiveness of the cost containment programs the company implemented
during fiscal year 2001. But the annual results remain depressing (See
Figure 2). Total revenue for the fiscal year ended January 31, 2001, was
$214.1 million, a 10.5% decrease compared to $239.3 million for fiscal
2000. Including restructuring charges and tax adjustments the company
reported net losses $25.4 million and $16.3 million for fiscal years 2001
and 2000, respectively.
"Our positive results
this past quarter reflect our customers' desire for improved productivity
through increased efficiency of their enterprise and supply chain systems
enabled by vendors they know and trust," said Karl Lopker, QAD chief
executive officer. "We also benefited from the refocused efforts
of our employees on growth and profitability after a series of cost reducing
actions in the third quarter."
On even more positive note,
major highlights during the quarter include:
positive cash flow from operations in the fourth quarter and the full
fiscal year of approximately $5 million and $12 million, respectively.
gross margin to 58% in the fourth quarter from 51% in the prior quarter,
due to a higher mix of license sales and a greater percentage of internally
developed software in QAD's revenue mix.
major multinational companies—including AT&T Wireless, FCI,
and Firmenich—have successfully piloted QAD eQ, the
company's new e-business software.
This is a mixed blessing
while QAD finally stemmed the tide of loses, the steeply declining license
revenue remains worrisome, as the company has been trying hard to deliver
products that would keep up with ever increasing market requirements.
Throughout 2000, it has continued to invest in the new initiatives to
target the collaborative e-business realm with the latest release of its
flagship ERP product MFG/PRO (eB) in September 2000 and
QAD eQ e-Commerce applications beyond traditional ERP functionality based
on IBM's WebSphere e-commerce application suite.
QAD had no choice but to
extend its foothold in its large, predominantly mid-market client base
and to fill the gaps and/or diversify its product offering. The combination
of MFG/PRO, eQ, and embedded point solutions from its premier partners
(IBM, Adexa, Robocom, Access Productique, etc.) might
provide QAD with a product set also suitable for larger, multinational
corporations. We also endorse the company's strategy of enhancing MFG/PRO
and continued emphasis on integrating MFG/PRO components with other back-office
systems. The company has also incorporated Internet architecture into
MFG/PRO in order to connect it with eQ. The openness and interconnectivity
are one of the most important tenets of competitiveness within the enterprise
applications market in the new Internet economy, and QAD has long grasped
believe the company has articulated an e-commerce vision that should have
an appeal to its mid-market users. The company has inevitably shifted
its focus from being a leading ERP vendor dedicated to the industrial
mid-market to fully leveraging the Internet in the applications it provides
to manufacturers, distributors and trading exchanges (for more information,
Explores e-Business While Not Abandoning ERP).
QAD offers eQ, which, although in the immaturity stage, can be viable
for focused areas such as direct materials procurement and/or replenishment
and sales order fulfillment. It is a series of applications with support
for XML messaging, Java, HTML, and no client software downloading. QAD
eQ is devised to support private Internet exchanges that are connected
to multiple sites, run on diverse ERP systems, and accommodate a rules-based
order management functionality.
Nevertheless, the company
faces the challenge of executing new product introductions throughout
2001 concurrently with its cost-cutting initiative. While the acceptance
of its new products has been satisfactory within its existing customers,
QAD still has to create greater market recognition and additional revenue
from beyond its current MFG/PRO customer base. The bad publicity due to
its financial difficulties certainly does not help in that regard. One
cannot help feeling sympathy for the company with a noble vision and ideas,
which often match or exceed those of its bigger competitors, that are
hampered by resource constraints.
in addition to its dwindling assets and stock holders equity situation,
QAD's timid strategy regarding a CRM offering, which currently consists
only of the 3rd-party product configuration and sales force
automation (SFA) modules (for more information, see Access
Commerce Spices Up North American CRM Fray) and ASP partnerships could
in the future be detrimental.
but not least, QAD's reliance on a number of partnerships to deliver extended-ERP
functionality may not be the preferable option for its target market
medium sized manufacturing organizations that still prefer a single source
provider and single data model and solution architecture. Thus, QAD may
find itself in a conundrum similar to J.D. Edwards' one (for more
information, see J.D.Edwards
Saved By SCM, Narrowly, And Only For Now).
While the dark clouds remain
hanging over QAD, we believe it will see better days in the future. The
company has broadened its product lines and seems to have responded to
recent market trends. Time only can tell how well it will target the right
e-business issues for the manufacturing and distribution mid-market within
its industries of focus (automotive, consumer products, electronics, food
& beverage, industrial products, and medical devices) and demonstrate
benefits to the prospect or customer, and how it will reverse the shrinking
comprehensive recommendations for both current and potential QAD's
users can be found in QAD's Costly eTransition Continues and QAD
Explores E-Business While Not Abandoning ERP.