Q4 '21 Earnings Preview

QAD (QADA) reports fiscal Q4 ’21 results after the market closes on Wednesday, March 24. Our estimates are relatively consistent with consensus, calling for a modest decline in revenue and another quarter of meaningful margin expansion relative to the year-ago period. Much like the manufacturing economy has shown steady improvement since the onset of the COVID-19 pandemic, we expect QAD to exit its fiscal year on a high note with both subscription and total revenue at their highest levels in FY ’21. As for the outlook, we are unsure whether management is willing to return to issuing more comprehensive guidance considering the ongoing pandemic. Over the past year, the company has guided to recurring revenue on a quarterly basis and has offered quantitative commentary on pipeline expansion. Trends in both metrics have been positive of late, and we expect any outlook and commentary provided to be supportive of our expectations for renewed top line growth in FY ’22 and modest earnings expansion. Our price target remains unchanged at $68.00, representing a FY ’22 EV/Sales multiple of 4.0x.

We project Q4 revenue, adjusted EBITDA and non-GAAP EPS of $77.6 million (-1.2% Y/Y), $7.4 million (9.5% margin) and $0.23, respectively. Although our revenue estimate sits a hair below Street expectations, we believe the consensus forecast is readily achievable considering a high degree of conservatism reflected in our projection. Underlying our revenue assumptions are license fees of just $1.8 million (-66.9% Y/Y) and professional services of $14.3 million (-10.4% Y/Y), while our estimates for subscription and maintenance revenue of $35.3 million (+23.3% Y/Y) and $26.3 million (-8.5% Y/Y), respectively, are in line with management’s guidance for $35.0 million and $26.0 million. With respect to profitability, we expect higher expenses on a sequential basis to reduce earnings relative to Q3 but anticipate over 300 basis points in operating margin expansion versus last year due to reductions in travel and marketing spend. We see potential for upside relative to the Street’s non-GAAP EPS estimate of $0.21.

For FY ’22, we expect revenue of $322.7 million (+6.7% Y/Y), adjusted EBITDA of $31.1 million (9.6% margin) and non-GAAP EPS of $0.91. Should management again limit its guidance to recurring revenue, our Q1 estimates for subscription and maintenance revenue are $36.8 million and $25.5 million, respectively, and sit at $159.3 million and $99.4 million for the full year.

Our report with model and disclosures is available here.