QAD Q2 '21 Earnings Preview

QAD (QADA) is slated to report its fiscal Q2 ’21 results after the market closes on Wednesday, August 26. Although we expect growth to remain muted by ongoing headwinds presented by the COVID-19 pandemic, we believe the company’s Q2 performance will meet or exceed Street expectations for a modest sequential decline on both the top and bottom lines. Our revenue and adjusted EBITDA estimates sit slightly above consensus and appear readily achievable, in our opinion. Worth noting, the manufacturing sector has rebounded from its April lows as evidenced by increases in the Institute for Supply Management’s (ISM) PMI in each of the past three months. With this in mind, we anticipate an improvement in cloud bookings on a sequential basis and believe commentary pertaining to the pipeline and potential deal closures should be more favorable than in the prior quarter. Considering that the COVID-19 crisis has yet to abate, however, we assume management will again restrict its guidance to expected subscription and maintenance revenues for the current quarter. We remain comfortable with our estimates in 2H ’21 and maintain our $51.00 price target, which represents a FY ’21 EV/Sales multiple of 3.0x.

Our Q2 estimates include revenue of $74.1 million, adjusted EBITDA of $3.7 million and non-GAAP EPS of $0.07, all of which are relatively consistent with Street expectations for $73.1 million, $3.3 million and $0.08, respectively. Our top line forecast includes $31.5 million in subscription revenue and $25.6 million in maintenance revenue, approximately in line with management’s guidance for $31.0 million and $26.0 million, respectively. Rounding out our revenue assumptions are $15.8 million in professional services and $1.3 million in license revenue, both of which reflect Y/Y declines due to headwinds arising from the pandemic but also suggest stabilization relative to Q1. We model a sequential decline in gross margin due to mix, partially offset by lower operating expenses. Much like the prior quarter, COVID-19 continues to create an inordinate level of economic uncertainty, which we believe is likely to limit management’s outlook to expected recurring revenue levels in Q3. In this regard, we project Q3 subscription revenue of $32.8 million and maintenance revenue of $24.5 million, both of which we expect to be consistent with management’s guidance.

Our report with model and disclosures is available here.