JD Edwards shows growth and profitability improving

License revenues up 35% from $55 million to $74m, and overall profitability also up in its last quarter over Q3 ($18m to $37m) put upper mid-market extended ERP software vendor JD Edwards considerably ahead of analysts’ expectations and certainly back into a position of financial health. But below the headline, it’s still difficult to predict future health. Total revenue for the year to 31 October was $904 million, with net income of $46m, against a loss of $180 million last year. And Q4 contributed well with total revenue of $247 million. Which is excellent. However, more than 60% of license revenue came from the existing customer base, which shows the firm better engaged with its client base, but casts a little doubt over its new business aspirations. And service revenues, associated with what appear to be upgrades and incremental application additions, while up and healthy, will limit growth. Nevertheless, in today’s economy it is unrealistic to suggest that JD Edwards’ Q4 was better simply because it was Q4. It’s more likely to be the firm getting it right. As analyst AMR puts it, “the current mix of license and services revenue is not ideal, but the company remains in excellent financial condition, with more than $350 million in cash and no debt.” Which in these times is a lot better than some. European marketing director Trevor Salomon puts the firm’s success down to “tactical marketing”, focus on its vertical markets and a good ROI (return on investment) story in terms of “starting wherever the business pain is” and rapid implementations. He also cites relatively easy implementation of bite size chunks of functionality as attractive to users, more buy-in to appropriate suites, like supply chain systems and CRM (customer relationship management), for the upper mid market and, candidly, costs under better control. Salomon, rightly, makes the point that there is more than an element of the virtuous circle in the figures, with vendors’ financial health higher on the commercial agenda than once was the case. Salomon can’t predict the accuracy of his sales pipeline or the state of the market better than anyone else, but of one thing he is adamant: “JD Edwards has turned the corner.” He’s also unequivocal over any ideas around acquisition. Despite the IT sectors vulnerability through reduced market caps, being consolidated, he says, is “absolutely not” on the agenda.